STATUTORY EXEMPTION ???

I think I am beginning to get a hold of the “statutory exemption” from additional requirements on attorneys and CPAs that top level IRS officials are using as the excuse for allowing those so designated to avoid the “meat” of the new tax return preparer regulation regime.

I have been told that -

“the regulations governing the practice of Attorneys, Certified Public Accountants, Enrolled Agents, Enrolled Actuaries, Enrolled Retirement Plan Agents and Appraisers before the Internal Revenue Service are published in 31 CFR Part 10 and reprinted in Treasury Department Circular 230. As for the statute itself, the legal cite for Attorneys and CPAs is:

Section 500(b) and (c) of title 4 of the United States Code, which provides:

(b) An individual who is a member in good standing of the bar of the highest court of a State may represent a person before an agency on filing with the agency a written declaration that he is currently qualified as provided by this subsection and is authorized to represent the particular person in whose behalf he acts.

(c) An individual who is duly qualified to practice as a certified public accountant in a State may represent a person before the Internal Revenue Service of the Treasury Department on filing with that agency a written declaration that he is currently qualified as provided by this subsection and is authorized to represent the particular person in whose behalf he acts.”

It seems to me the problem arises with the definition of the term “practice”. The IRS, it seems, has proposed that the term “practice” include not only representing clients before the IRS and in Tax Court, but also “preparing” tax returns. The Service, under the new regime, would extend the right of limited “practice”, limited to the specific practice component of “tax return preparation”, to those who will eventually be the newly designated Registered Tax Return Preparers. But Attorneys and CPAs have been previously permitted the right to apparent unlimited “practice” before the IRS based solely on their state credentials.

However, the wording I was quoted does not say that attorneys and CPAs are authorized to “practice before the Internal Revenue Service” but “may represent a person before an agency” or “may represent a person before the Internal Revenue Service of the Treasury Department” and are “authorized to represent the particular person in whose behalf he acts”. So I see no problem here with requiring attorneys and CPAs who want to prepare 1040s to take the test and the annual CPE in federal taxation.

If the “statutory exemption” is found elsewhere in federal law, perhaps buried in the humongous Administrative Procedure Act as has been suggested, I would appreciate it if someone could tell me exactly where (chapter and verse, so to speak).

If CPAs and attorneys are exempt due to statutory language I certainly hope that the IRS, in its public education campaign, emphasizes the fact that only Enrolled Agents and the new Registered Tax Return Preparers have proven competence and currency in 1040 preparation by being tested and required to maintain mandatory annual CPE in federal taxation.

TTFN

THE NEW E-FILE MANDATE

Every US citizen and resident is required to file a federal income tax return, regardless of age (a subject for another post), if the individual/couple has gross non-exempt income in excess of a certain threshold, based on the individual’s, or married couple’s, filing status and situation.

An individual with income below the appropriate filing threshold may still need to file a tax return to get a refund of federal income tax withheld, or to claim an Earned Income, Additional Child Tax, American Opportunity or other refundable Credit. And a person may also be required to file a federal income tax return to calculate and pay an additional federal tax or penalty other than income tax.

An individual or couple may engage a tax professional, such as me, to prepare the federal income tax return that he/she/they is/are required to file. While, as is the case with just about every situation where a person or company provides goods or services for compensation, the preparer has certain legal and ethical responsibilities regarding the preparation of the return, the tax pro is hired by the taxpayer to simply prepare the return.

My obligation as a paid tax preparer ends when I complete the return properly and, upon being paid, give the finished return to the client for signature and filing. The taxpayer client is responsible for filing the return. The client may choose not to file the return I have prepared, opting to get a “second opinion” from another preparer if not satisfied with my result, and may actually file a return prepared by another tax professional.

A taxpayer may decide to file his/her/their return electronically instead of mailing a paper return. In order to file electronically most taxpayers must use tax software (although the IRS does offer a Free File program through outside vendors for certain low-income taxpayers with simple returns). A professional tax preparer may have the capability, via the expensive tax preparation software package he/she uses, and by registering as an “Electronic Return Originator” (ERO), to submit returns electronically, and the taxpayer client may request that the tax pro submit the return he/she has prepared electronically as an additional service.

But the bottom line is that the requirement to file a return lies solely with the taxpayer. A professional tax preparer has absolutely no obligation to file a client’s tax return. If a required return is not filed, or filed late or incompletely, it is the taxpayer, not the tax preparer, who is responsible to and penalized by the Internal Revenue Service (although there may also be preparer penalties is part or all of the “incompleteness” is proven to be the fault of the preparer).

As a paid tax preparer the only federal income tax return that I am required to file (and the only return that I actually file) is my own!

What am I getting at here?

Congress passed a law, via an amendment to the Worker, Homeownership, and Business Assistance Act of 2009, that says. “The Secretary shall require that any individual income tax return prepared by a tax return preparer be filed on magnetic media if (i) such return is filed by such tax return preparer, and (ii) such tax return preparer is a specified tax return preparer for the calendar year during which such return is filed”. It goes on to say that, “For purposes of this paragraph, the term ‘specified tax return preparer’ means, with respect to any calendar year, any tax return preparer unless such preparer reasonably expects to file 10 or fewer individual income tax returns during such calendar year”.

The probable intent, and popular interpretation, of this law is that professional tax return preparers are required to submit all returns they have prepared electronically. Presumably if the return is not submitted electronically it is the preparer, and not the taxpayer, who will be penalized. This is wrong!

The text of the law states – “if (i) such return is filed by such tax preparer”. To reiterate what I discussed above, as a professional tax preparer I do not “file” any tax return other than my own. I “prepare” a tax return, and may, as a convenience for and at the request of the client, actually put the signed return in an envelope addressed to the IRS, seal and stamp it, and deposit the envelope in the outgoing mail slot at the Post Office. But the taxpayer client is the one who actually “files” the return. To be sure no “such return” is ever filed me, the “such tax preparer”.

So as I read this law, the requirement to electronically file a federal income tax return that has been prepared by a tax preparer falls on the taxpayer and not the tax preparer.

This is as it should be. If Congress wants federal income tax returns to be filed electronically then the responsibility to do so should fall on the individual whose responsibility it is to actually file the return – the taxpayer.

I certainly understand, and agree with. the reasons why Congress and the IRS, and the state tax authorities, want tax returns filed electronically. It is cheaper and more efficient to process returns that have been submitted electronically. I have no problem with submitting tax returns electronically, although some of my clients do not completely trust the process of electronically filing anything.

Prior to the passage of the federal law many states, New Jersey included, required resident paid tax preparers to file state income tax returns electronically. While I have not counted, I expect that I “submit on behalf of my clients” (I do not file) about 2/3 of my NJ returns electronically. I do it because I can do so free of charge directly on the NJ Division of Taxation website using the state’s NJWebFile system. The 1/3 that are still submitted via postal mail are done so because of the restrictions of the system (all NJ-1040s cannot be submitted via NJWebFile) or because the client specifically does not want me file electronically.

Filing NJ returns electronically, while certainly beneficial to the State of New Jersey, also has a benefit for the taxpayer. Only electronically submitted returns can request direct deposit of a refund – so the taxpayer gets his money quicker. There is really no additional benefit to the taxpayer for filing federal returns electronically, as refunds on paper-filed returns can request direct deposit.

I do not file federal income tax returns electronically because I do not use expensive and flawed tax preparation software to prepare returns. I prepare all my federal income tax returns manually – always have and always will. Tax return software is really the only option for submitting returns directly to the IRS electronically. The current “traditional” FreeFile program offered by the IRS, which I pointed out is extremely limited, and an apparently very flawed “Free File Fillable Forms” option, use outside vendors to submit the return.

If the IRS offered a system for electronically submitting federal returns equal to the NJWebFile system I would gladly, as a convenience for my clients, “submit on their behalf” finished 1040s and 1040As electronically, unless they specifically chose to “opt-out” as they apparently will be permitted to do.

Many states, again NJ included, now require that all business filings and returns be done electronically. The only way to submit these filings and returns, and applicable payments, is online. There are no longer any more paper, for example, WR-30s, NJ-927s, NJ-500s, or ST-50s or 51s. And these states provide a free way to directly submit all filings and payments online. The business is not required by the state to purchase potentially flawed and expensive commercial software.

In these cases the requirement is placed on the individual business owner, and not on the outside accountant or tax professional for the business. As it should be. I gladly “submit” the payroll and sales tax filings and payments for my few remaining business clients via the NJ Division of Taxation website as a service.

So I believe that, as the law is written, I am not required to submit the 2010, and subsequent, federal income tax returns that I prepare for clients electronically.

I am very sincerely interested in the comments of my fellow tax professionals, and especially my fellow tax bloggers (are you listening Annette, Kay, Kelly, Mary, Trish, Bruce, Dan, Jim, both Joes, Russ, etc?) on this post. You can respond “on the record” by submitting a comment, or “off the record” by email to rdftaxpro@yahoo.com.

TTFN

WHAT’S THE BUZZ? TELL ME WHAT’S A HAPPENNIN’ – WEDNESDAY EDITION

* Check out my piece “IRS Sets New Rules for Tax Preparers” at MAINSTREET.COM.

* OOPS! An item that missed Saturday’s BUZZ installment – “Dead People Need a Place to Live Too” from Joe Kristan at the ROTH AND COMPANY TAX UPDATE blog.

* Professor Nellen adds her voice to the debate on the regulation of tax return preparers in “Regulating Paid Tax Return Preparers” at 21st CENTURY TAXATION.

She makes an excellent point when she correctly says –

“If Congress and the IRS want to reign in these unscrupulous preparers, they really need to (unfortunately) add a very large penalty to the tax system to be imposed on taxpayers who file a return they paid someone to prepare and did not get that preparer to sign the return and list his identifying number. Such a penalty would keep taxpayers away from unscrupulous preparers who would then go out of business.”

* Check out the WALL STREET JOURNAL’s article on “Tax Wars: Washington Is Bracing for a Historic Battle Over U.S. Tax Law. Here's What You Should Do Now”.

* Kay Bell reminds us that the poor souls, with poor timing, who purchased a new home when the first homebuyer credit (actually not a credit, but an interest-free loan) was in effect will need to begin to repay the loan on their 2010 Form 1040 in her post “Homebuyer Tax Credit Payback Chaos?” at DON’T MESS WITH TAXES.

Kay expects, as do I, that as the entire credit/loan history has been full of trouble, and tons of fraud (i.e. the almost 800 dead people who claimed the credit) the payback will be no less chaotic.

* A special thanks to Kay for mentioning the BUZZ in her post “Week-End Tax Round-Ups”.

* Like, in addition to TWTP, I also write on taxes for MAINSTREET.COM, Kay Bell, in addition to DMWT, also writes on taxes for BANKRATE.COM. She has an extensive explanation of “What To Do If Bush Tax Cuts Expire” there.

* Just as my BUZZ is a “must read” for a Saturday morning – so Bruce the MISSOURI TAX GUY’s “themotaxguy.com/reads-from-last-week-12” is a “must read” for a Sunday morning. I had never heard of a “Virtual Assistant” until I read Sunday’s installment.

* “The New Threat To Your IRA: An IRS Crackdown” by Ashlea Ebeling at FORBES tells us that “The IRS is cracking down on violations of the picky rules around IRAs”.

* From YAHOO FINANCE (via BANKRATE) – “5 Little-Known Facts About Social Security” by Marilyn Bowden.

How Broke Is Social Security? Here are some answers -

“According to many studies, the Social Security trust fund will be able to cover its retirement and disability obligations for the next 30 years or so, after which there will be a shortfall of about 22 percent. The Senate Special Committee on Aging figures funds will fall short in 2037.”

* I feel your pain, Trish McIntire. I wish all my clients would read her post “Tax Maid” at OUR TAXING TIMES.

* Trish follows up with a contribution to the discussion on tax preparer regulation in “Take A Snap-shot”.

* And Bill Perez reminds us that today is the due date for 3rd Quarter estimated tax payments in “Reminder: Estimated Tax Payments Due September 15th” at WILLIAM’S TAX PLANNING BLOG.

I am off to PA for the rest of the week. There will be no BUZZ installment this coming Saturday.

TTFN

TAX COURT MORAL – SAVE THOSE RECORDS!

A Tax Court case emphasizes the need to keep good records of all financial transactions and related correspondence – especially if there is a dispute involved.

The current issue of NATP’s TAXPRO MONTHLY discusses William Jon McCormick, et ux, v Commissioner TC Memo 2009-239.

The taxpayers in question had a loan account with Citi Financial Services and a credit card with Chase. They paid Citi $7,500 to settle a loan balance of $8,042.00 and Chase $1,000 to settle a credit card balance of $2,875. They received a Form 1099-C for $542 from Citi Financial and $1,875 from Chase. The McCormicks did not report the full $2,417 in 1099-C income on their 1040.

Prior to the pay-off settlements the McCormicks had challenged the Citi Financial balance, indicating that a $492 insurance refund to which they were entitled but not paid should be applied to the outstanding balance, and had also questioned the Chase balance, feeling the true balance due was only $1,000, which they paid.

It seems the couple did not use the “bankruptcy exclusion” to avoid paying tax on the Cancellation of Debt income.

The IRS assessed the taxpayers the tax, and penalty, based on the full 1099-C amounts, and the issue ended up in Tax Court (which sort of surprised me considering the relatively small amount of tax liability involved – unless this was not the only issue).

The article tells us –

“Referring to {Code Section} 6201(d), if the taxpayer asserts a reasonable dispute with respect to any item of income reported on the return and has fully cooperated, the Commissioner shall have the burden of producing reasonable and probative information concerning the deficiency.”

The taxpayers presented in evidence sufficient credible documentation for the Court to find that “a bona fide dispute existed regarding the $492 insurance refund on the CitiFinancial debt and the balance of the Chase amount over $1,000.” All the IRS had to show was the Form 1099-Cs.

.

The Court ruled that the McCormicks only had to report $50.00 in COD income from CitiFinancial ($8042 - $492 = $7,550 - $7,500 = $50) and none of the Chase COD income.

So when it comes to your financial life keep all those bills, records, and both ends of correspondence.

TTFN

TWO MORE VOICES HEARD FROM

A couple of tax professors have weighed in on the new tax return preparer regulation regime.

Professor Annette Nellen of San Jose University correctly observed in her post “Regulating Paid Tax Return Preparers” at her 21st CENTURY TAXATION blog (the highlight is mine) –

“I don't think the proposed system will cause unscrupulous preparers to change behavior. They will just become (or continue to be) paid preparers who do not sign the return so remain off of the IRS radar screen (until the taxpayer gets audited and leads the IRS to the preparer). . . If Congress and the IRS want to reign in these unscrupulous preparers, they really need to (unfortunately) add a very large penalty to the tax system to be imposed on taxpayers who file a return they paid someone to prepare and did not get that preparer to sign the return and list his identifying number. Such a penalty would keep taxpayers away from unscrupulous preparers who would then go out of business.”

Professor Nellen also has an excellent and detailed article on the history and rationalization of the new tax preparer regulation titled “Registered Tax Return Preparers: Beware of New Jargon and Compliance Obligations” at CPA2BIZ.

Professor Mary O’Keefe of Union College in upstate New York submitted the following comment on Professor Nellen's post –

“With current filing methods and the existing tax software, there are many practical barriers which make it unreasonable to burden taxpayers with the responsibilities of monitoring whether their preparers have 'signed' their returns.

I outline some of these difficulties in a response on my blog.”

As indicated in her comment, Mary discusses the issue, and outlines what she considers the “many practical barriers” in the post “Should Taxpayers Be Enforcing the New Preparer Regulations?” at her blog BED BUFFALOES IN YOUR TAX CODE.

Her suggestion -

“I'd like to see a requirement that paid preparers must authenticate their identity and their registered PTIN status to their clients BEFORE they are allowed to request any sensitive information including W-2s, bank statements, old tax returns, etc.

Instead of imposing a penalty system on taxpayers to enforce the preparer return-signing law, I suggest a taxpayer education program to inform taxpayers that return preparers who are unable or unwilling to authenticate their registered status prior to requesting their confidential financial documents are operating outside the law and therefore unworthy of their trust.

In addition, the government already sends out ‘secret shoppers’ to paid preparers to monitor whether they are behaving in an unscrupulous manner, including failing to sign a return and/or to include a preparer ID number. They should surely continue to do that.”

In a follow up post titled “A ‘PTIN Facebook’ for Registered Tax Preparers” Mary further suggests that –

“in this day and age of social network software, it should be straightforward for whatever company the IRS selects to run the PTIN registration system to host a secure site where registered preparers can upload their photos, so they can be linked to PTIN registration records.

The irs.gov website should provide a link to that website and the IRS should educate taxpayers that it is in their own best interest to verify the identity and registration status of their tax preparers before they give him any confidential tax documents or provide any sensitive financial or personal information.

In other words, when a taxpayer first approaches a potential tax preparer, she should be able to ask for his name and PTIN before she gives him any confidential information. She ought to be able to go to irs.gov and find a link to a webpage where she can type in his PTIN and see his name, photo, and contact information.”

I agree with Professor Nellen – the IRS should heavily penalize individual taxpayers who use unregistered persons to prepare their tax return. Crooked tax return preparers would not be able to exist for long without crooked taxpayers.

It may not be easy to identify these taxpayers. But if this is discovered in audit there should certainly be a large penalty, which would not be available for abatement in any negotiation. David Williams of the IRS has suggested that the IRS may sent out inquiries to selected taxpayers with “self-prepared” returns asking them to certify by signature, under penalty of perjury, that they did indeed prepare their own return.

Regarding the scenarios that Mary has discussed, the penalty should be assessed if a taxpayer pays an individual to either prepare in total, or prepare a “substantial” or “significant” portion (i.e. a Schedule C, D, or E) of a filed return.

I also agree with Professor O’Keefe that there should be an easily accessible database of registered tax return preparers searchable by name and by PTIN so that taxpayers can be sure the person can verify, if not the competence of the preparer (as in the case of CPAs and attorneys who do not have to provide any measure of competence in 1040 filing) at least that the preparer is duly registered and authorized by the IRS to prepare 1040s. The IRS has promised that this will be a component of the new regime in the future.

And the IRS should embark on a highly visible public education campaign to inform taxpayers that only those preparers who possess a PTIN (eventually only Registered Tax Return Preparers, Enrolled Agents, who have proven a degree of competence and are required to remain current through mandatory CPE, and CPAs and attorneys who have registered) are legally authorized to prepare, or assist in the preparation of, a Form 1040, or 1040A, for a fee.

This campaign should also highlight the fact that taxpayers who use unregistered preparers will be heavily penalized.

A public education campaign has also been identified by the IRS as an eventual component of the regime.

I do think that potential taxpayer clients should have the right to request and be given the PTIN of a tax preparer as part of a general inquiry before choosing to use that preparer – so they can check the IRS database up front. Perhaps a preparer’s PTIN should be required to be listed in any advertising.

As for Mary’s suggestion of continued “secret shopper” stings – I do think that such an operation should be done as a one-time “test” after the tax preparer registration regime has been fully phased-in, in maybe five years from now, but I do not believe the IRS should spend its time and money on this as a regular practice.

So what do you think?

TTFN

NEVER FORGET!

Police Officer Maurice Barry - PATH Emergency Service Unit - P.O. Shield #1038

A Port Authority officer for 16 years, Maurice "Moe" Barry, 48, was assigned to the PATH commuter train system. The resident of Rutherford, NJ, upon hearing the reports of the terrorist attacks, was one of the first on scene when he rushed from Jersey City to Lower Manhattan and then into the North Tower to help in the rescue efforts. As thousands fled the searing flames and smoke of the Towers, Officer Barry was attempting to reach trapped and frightened workers on the upper floors. The last time he was seen, he was on his way to the higher floors to get people out.
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Moe had a history of heroism - he was involved in rescue efforts during an airplane crash at La Guardia airport; he once climbed a bridge to retrieve the body of a person electrocuted there; he was involved in the rescue effort during the 1993 bombing of the World Trade Center; and he rescued a woman from her home, by boat, during Hurricane Floyd. Moe was also a volunteer for the Rutherford Ambulance Corps.
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Moe was a longtime friend and client. He would always come in on the last day to have his tax return prepared. We knew the season was over when Moe came in the door. One year he came in on April 10th and we told him to go home and come back on the 15th.
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In memory of Moe I no longer work on 1040s on April 15th (or whatever is the last day of tax filing season).

WHAT’S THE BUZZ? TELL ME WHAT’S A HAPPENNIN’

* Have you seen my item on the “New Rules on Flexible Spending Accounts” at MAINSTREET.COM?

* An email brought my attention to the post “10 Things Grads Should Know About Retirement Planning” at the BEST COLLEGES ONLINE blog.

It has some good advice for the recent graduate, beginning with perhaps the best –

“Start immediately: This is the most important thing to know, and the one that will jump-start the others. It’s never, ever too late to start saving retirement, but the sooner you start, the better off you’ll be.”

* Bruce, the MISSOURI TAX GUY (don’t be confused by his url address – the “mo” in motaxguy refers to the state and not “mo” tax, like “mo” money) has been publishing a lot of good non-tax posts lately. One of note is “Should You Invest In Life Insurance”.

I have no dependents or anyone who relies on my income, other than Nosey the cat, so I really don’t need life insurance – although I do have a small term life policy with AARP that provides enough cash to bury me if I spend all my dough before I go.

* Professor Nellen shares her thoughts on “President Obama's New Stimulus Proposals & Tax Policy" at 21st CENTURY TAXATION.

* Diane Kennedy has a post on “EA, CPA or Tax Attorney” at her US TAX AID blog.

She begins the post by saying – “Every so often I read an article making some outrageous claim about Enrolled Agents (EAs) being better than CPAs, or vice versa.”

Well, nothing else but initials known, Diane actually goes on to explain why an EA is better than a CPA, at least when it comes to 1040 preparation –

“In general, an Enrolled Agent (EA) is someone who has passed a rigorous tax test given by the IRS.” And - “So, a CPA doesn’t necessarily know about taxes.”

As for a tax attorney, I agree with almost everything she has to say here -

“You definitely need a tax attorney if:

• You have a taxable estate, need to make complex estate planning strategies, or need to file an estate tax return.
• You are engaging in international business and need help with contracts, tax treatment, and other legal matters.
• You plan to bring a suit against the IRS.
• You plan to seek independent review of your case before the US Tax Court.
• You are under criminal investigation by the IRS.
• You have committed tax fraud (such as claiming false deductions and credits) and need the protection of privilege.”

My only disagreement is in the first “bullet” – you don’t necessarily need a tax attorney merely to file an estate tax return.

The above are pretty much the only reasons you need a tax attorney. No one in their right mind would walk in to the office of a tax attorney off the street just to have a 1040 prepared. Hey, we all know that attorneys are extremely expensive. And, by the way, CPAs ain’t cheap either.

* Kay Bell lets us know that “Capitol Hill Workers Top Unpaid Tax List” at DON’T MESS WITH TAXES.

Kay tells us that –

“The Washington Post reports that Capitol Hill employees owed $9.3 million in back taxes last year. Even worse for the Washington workers, and their bosses, is that IRS data show tax debt among Hill employees has risen at a faster rate than the overall tax debt on the government's books.”

The Post item states that 638 of the 18,000 employees on Capitol Hill, or about 4%, owe money to their Uncle Sam. That percentage is slightly higher percentage than the 3% delinquency rate among all U.S. tax returns. The average unpaid tax bill of a Senate employee is $12,787, while in the House the overage overdue tax amount is $15,498.

Kay points out that this is nothing new. Each year a similar item appears in the press and the blogosphere.

The IRS information used as a source for the Post article does not “name names” or indicate which party is the bigger offender.

“So conceivably, some members of Congress could be tax delinquents. Admit it. You tax geeks and political wonks are wondering if former Ways and Means Chairman Charles Rangel (D-N.Y.) is on this latest list.”

* Howard Gleckman explains the “outlines of the Great Tax Debate of 2010” in “Tax Cut Smackdown: Obama v. Boehner (and Orszag)" at TAXVOX, the blog of the Tax Policy Center.

“President Obama insisted on permanently extending the 2001-2003 tax cuts for those making less than $200,000 while allowing those aimed at the highest earners to expire at the end of the year. By contrast, House Republican leader John Boehner (R-OH) said he wants Congress to temporarily extend the Bush-era tax cuts for everyone. Boehner took his cues from an op-ed in Tuesday’s New York Times by Peter Orszag, Obama’s former budget director, which included a similar proposal for the next two years.”

Gleckman prefers the temporary extension of the Republicans, as do I.

As Howard has pointed out, there is no such thing as “permanently” extending the tax cuts. Congress can change the Tax Code whenever it wants – so nothing is ever “permanent”.

By allegedly “permanently” extending the tax cuts for those under $250,000 BO is walking away from the problem. And, as Howard states, “It implies that the nation can solve its budget problems by simply raising taxes on the wealthy”.

Congress must sit down and rewrite the Tax Code. By extending the cuts for another year or two it is more likely that some kind of real change will occur before the next expiration date – hopefully in 2011 - unless the cafones in Washington just make it another of the “extenders” and continue to avoid their responsibility by regularly passing one or two year extensions

* I have been touting “bi-weekly mortgages” for decades now. Brian O'Connell outlines “4 Ways to Save With Bi-Weekly Mortgages” over at MAINSTREET.COM, where I regularly write about taxes.

“It’s not rocket science. When you pre-pay the principal on your mortgage loan, you knock down the total cost of your mortgage. The larger the pre-payments, the more you save. Plus, the sooner you begin to pay off your mortgage, the more you’ll save over the long term.”

* Kelly Phillips Erb, the internet’s TAX GIRL, reminds us that “Deadline Approaches for Public Comment About Forms 1099”.

“So you’re really fired up about those new 1099 reporting requirements for 2012, right? The ones that are going to cause all of those headaches for you and your small business?

You’ve bellyached about it on twitter. You’ve railed against it on a number of blogs. You’ve griped about it on Facebook. You’ve passed along chain emails complaining about how much effort it’s going to be to comply.

But, er, have you really done anything about it yet?”

The IRS wants to hear your comments on this new law – but time is running out. Kelly tells us that “The deadline for public comment is September 29, 2010”.

* Speaking of the TAX GIRL, let’s end with a bit on Romanian taxes from Kelly – “Ooooh… I See Taxes In Your Future!".

TTFN

A TRIVIA CONTEST!

It has been a while since I “hosted” a trivia contest here at TWTP. Here is one that combines my love of classic tv and musical theatre.

The winner will receive, via email attachment, my “Documenting 2010 Deductions”

It is a three-parter –

(1) Who was the original Alice Kramden, to Jackie Gleason’s Ralph, when “the Honeymooners” first appeared as a regular series of skits on the DuMont Network's "Cavalcade of Stars"?

(2) Why did this actress not appear in the actual series, where she was replaced by Audrey Meadows?

(3) What was the subsequent Broadway role, which she repeated in the movie version, for which this actress is best known?

No fair "GOOGLING" now!

Send your answers via email to rdftaxpro@yahoo.com. Put “TWTP Trivia Contest” in the subject line.

TTFN

PS – Here is a bonus Broadway connection – Who played Trixie on “Cavalcade of Stars” before Joyce Randolph took over the role?

SOME FACTS AND FIGURES ABOUT THE FEDERAL TAX SYSTEM

Here are some interesting facts and figures concerning our current tax system that were included in the “Report on Tax Reform Options” recently issued by the President's Economic Recovery Advisory Board -

* Taxpayers and businesses spend 7.6 billion hours and incur significant out of pocket expenses each year complying with federal income tax filing requirements. In monetary terms, these costs are roughly equivalent to at least 1% of GDP annually (or about $140 billion in 2008).

* Based on IRS research, on average individual tax filers spend more than 17 hours on tax-related matters each year. About 30% of the time is spent actually preparing and submitting a tax return, and the remaining 70% is spent on recordkeeping, tax planning, and other tax-related items. Recordkeeping alone is nearly half of the total time burden.

* Between 1987 and 2009, the instruction booklets sent to taxpayers for the Form 1040 increased in length from 14 pages to 44 pages of text.

* There have been more than 15,000 changes to the tax code since 1986.

* The tax system includes at least 18 different provisions benefiting taxpayers with educational expenses. The publication that discusses education benefits offers 11 definitions of a “qualifying expense” and a “qualifying institution” for 12 education-related tax provisions.

* The Government Accountability Office (GAO) estimated that for tax year 2005, 19% of eligible tax filers failed to claim either a tuition deduction or a tax credit for which they were eligible.

* An IRS study suggested that between 23% and 28% of EITC (Earned Income Tax Credit) payments in fiscal year 2006 were incorrect.

* Current law requires approximately 10 million dependents to file taxes each year to report relatively small amounts of tax. In 2005, 5.7 million dependent files (out of 9.9 million) paid less than $50 in taxes, and most of those 5.7 million owed no taxed and filed only to get a refund.

* More than 20 provisions in the tax code provide incentives to save for retirement and for other purposes like education and medical expenses. About half of all workers are not offered a retirement plan at work.

* Without legislative intervention to increase the Alternative Minimum Tax (AMT) exemption, more than 28 million taxpayers will need to pay the AMT in 2010; by 2020 the number would climb to more than 53 million.

* Overall, in fiscal year 2009, the IRS examined 1.4 million or about 1.0% of individual tax returns. The examination rates ranged from 0.4% of simple returns with total positive income under $200,000 up to 10.6% of returns with AGI of $10 million and over.

Do you think we need major changes to our income tax system?

TTFN

WHAT’S THE BUZZ? TELL ME WHAT’S A HAPPENNIN’ – WEDNESDAY EDITION

Not much BUZZ this installment – due to holiday week-end.

* The IRS tells us that, as per the Affordable Care Act enacted in March, a new uniform standard takes effect Jan. 1, 2011, for flexible spending accounts, health reimbursement arrangements (HRAs) Health Savings Accounts (HSAs), and Archer Medical Savings Accounts (Archer MSAs).

“Under the new standard, the cost of an over-the-counter medicine or drug cannot be reimbursed from the account unless a prescription is obtained. The change does not affect insulin, even if purchased without a prescription, or other health care expenses such as medical devices, eye glasses, contact lenses, co-pays and deductibles. The new standard applies only to purchases made on or after Jan. 1, 2011, so claims for medicines or drugs purchased without a prescription in 2010 can still be reimbursed in 2011, if allowed by the employer’s plan.”

* Kay Bell provides some interesting facts and figures for tax year 2007 in her post “Where Does Your Taxable Income Rank?”

For example –

“The top-earning 1 percent of taxpayers reported 22.8 percent of all AGI and paid 40.4 percent of total income taxes.”

And -

“The lowest-earning 50 percent of taxpayers reported 12.3 percent of all AGI and paid 2.89 percent of total income taxes.”

* Speaking of Kay, my post on was included in her “Tax Carnival #74: Labor Day 2010”, which “spotlights the efforts of tax and personal finance bloggers who help workers pay as little tax as possible on their earnings”.

The Carnival begins with some good posts on retirement accounts, and has some other good “stuff”.

* Trish McIntire has some good advice for taxpayers who receive an IRS notice on a self-prepared return and choose to respond personally in “Step Away From the Keyboard” at OUR TAXING TIMES.

Actually a better piece of advice is - do not respond personally. Even if you prepared the return yourself you should contact a tax professional if you receive a notice from “Sam” of any other “uncle” or “aunt”.

* BLOOMBERG reports that “Obama to Propose Expanded Tax Relief to Encourage Investment in Equipment”.

“The White House will propose allowing companies to fully deduct the cost of equipment such as tractors, wind turbines, computers and solar panels, said an administration official who spoke on condition of anonymity ahead of the president’s announcement this week.

In 2008 and 2009, companies could deduct 50 percent of their costs using so-called bonus deprecation. The latest proposal would increase the tax break to 100 percent through the end of 2011 and make it retroactive to Sept. 8, 2010, the official said.”

* The IRS has released a draft version of new Form 8941 - Credit for Small Employer Health Insurance Premiums.

TTFN

HAPPY LABOR DAY!

I am laboring away on the GD extensions!

TTFN

AT THE MOVIES

A friend recently emailed me -

“I can't find any movies I want to watch at all. I've been a movie freak all my life, but now they're all full of Jennifer Aniston and stupid stories--Dinner with Schmucks?.”

A day later I was watching a program on the REELZ Channel that indicated that the box office take this summer was truly disappointing.

I, too, used to be a movie freak. There was a time when I went to the movies once a week, or at least once every other week. I do miss the movie theatre viewing experience.

The last movie I saw in a theatre was CATS AND DOGS II in 3-D (I am a sucker for movies with talking animals). I can’t remember the last movie I had seen in a theatre before that – perhaps the first IRON MAN.

Part of it is the current fare. Action films are not what they used to be (the original CLASH OF THE TITANS was far superior to the recent remake). Male-oriented comedies are written at the level of 5th grade boys - no wit, just a lot of flatulence and other bodily function references. The late Steve Allen, a prolific writer as well as gifted comedian, warned of the “dumbing down of America” – and our current cultural scene, at least in terms of television and movies, certainly proves his predictions correct. “RomComs” may be a bit better – but I can see made-for-cable romcoms, probably just as good as those in theatres, for free on Lifetime or LMN.

Perhaps the best cable station around is TCM – TURNER CLASSIC MOVIES. While not every offering is a gem, it is certainly proof that “movies aren’t what they used to be”. There was not a single fart joke in IT’S A MAD, MAD, MAD, MAD WORLD!

A large part is the cost. $10.00 or more to see a movie! Even the bargain matinees, which I used to go to pretty much exclusively, are now $7.00. And an additional $2.50 or more for 3-D, which is currently all the rage.

I paid $9.50 to see a bargain matinee of CATS AND DOGS II – because it was in 3-D (and because I was on vacation). While the 3-D process was entertaining, it was not essential and did not really add much to the movie.

Prior to this I had never paid more than $6.00 to see a movie – except for IMAX. As mentioned, I almost exclusively went to bargain matinees and paid on average $5.00 or less.

I remember the days, 20+ years ago, when I used to see 2 movies in a theatre on a Saturday afternoon (one new and one maybe 6 months old) for $2.00!

I currently subscribe to Digital Cable and receive many ENCORE movie channels as part of my package. I can wait for a movie that I may want to see to come to cable. My package also includes ON DEMAND. While the free movie selections are truly limited, I can break down and pay $4.99 for a more recent movie if I don’t want to wait too long.

For me the absolute best value around is NETFLIX. For $9.00+ a month I get about 2-3 DVDs per week in the mail - and can watch unlimited movies online as well for no additional cost. While the online choices are more limited than the DVDs offered by mail, there is still plenty form which to choose. The bulk of my DVD rentals and online viewing is British and old American television series (some going back to the 1950s).

I admit that once or twice a year I spend over $100 to see a live Broadway show – although I prefer to purchase tickets to Broadway and off-Broadway via TDF (Theatre Development Fund) for at most $35.00, and I do belong to the New York Musical Theatre Festival, where I can see new musical productions, however small in scale, for only $20.00 each. AAMOF, This afternoon I am off to “Theatre Row” on 42nd Street in NYC to see a matinee via TDF. But live theatre is different – both in terms of the quality and the experience.

So I guess the chances are extremely slim that I will ever see you “at the movies”.

TTFN

WHAT’S THE BUZZ? TELL ME WHAT’S A HAPPENNIN’

* My sparring partner Joe Kristan of the ROTH AND COMPANY TAX UPDATE BLOG acknowledged my latest volley in our debate on tax preparer regulation in “Flach and Preparer Regulation”.

It is nice to have a normal, serious and professional online debate, considering past experiences with some less professional fellow tax bloggers.

We both agree that “the argument boils down to whether the benefits of regulation are worth the costs”.

Joe compliments my volley – “Robert does make some interesting observations worth addressing when I have more time later. Meanwhile, he makes as good an argument for the bad case for preparer regulation as you're likely to find.”

I look forward to Joe’s upcoming response.

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* Later in the week Joe explains that “debt cancellation usually is taxable, but not always, and a 1099-C doesn't by itself always mean you have to pay tax” in his post “Debt Cancellation Income: A 1099-C Isn't Always Right”.
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* Before I leave the subject of tax preparer regulation let’s check out WEBCPA’s article “NSA Tells IRS to Level Playing Field for Tax Preparers” about the recent National Society of Accountants testimony before the Internal Revenue Service on the agency’s proposals for registering, testing and requiring continuing education for paid tax preparers.
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“NSA executive vice president John Ams testified Tuesday that the IRS should treat all paid tax preparers the same way by subjecting all of them to the requirement for Preparer Tax Identification Numbers, and not exempt those who may be subject to state regulation.” {note – the above highlight is mine}

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* TAX PROS – check out the SPECIAL OFFER over at my NJ TAX PRACTICE BLOG! And members of NATP may want to check out my “Tax Pro Buzz” exclusive blog post in the MEMBER2MEMBER section of the NATP website (sorry – cannot provide direct link – click on “Blogs” in the menu).

* William Perez reports that “Tax Amnesty in Illinois Signed into Law” at WILLIAM’S TAX PLANNING BLOG.

* Kay Bell tell us how to “Donate and Deduct Credit Card Rebates“ at DON’T MESS WITH TAXES.

* The IRS online EFTPS system is an excellent way to schedule all your federal estimated tax payments for the year so that you don’t forget to make one on time. Kay discusses this process in her post “Time To Open Your EFTPS Account”.

* Kelly Phillips Erb hosted a series of guest posts on the topic of the Bush Tax Cuts over at TAX GIRL this past week. The first one was “Death to the Estate Tax” by Vinny Kochetta.

* Speaking of the Bush Tax Cuts, see how much you know about the expiring tax cuts by taking the TAX FOUNDATION’s “Bush Tax Cut Quiz”.

* Thanks to Joe Arsenault for including TWTP in his mini-Buzz “BlogRoll Beans” post at CAFETAX. And if you haven’t checked out his new website ROTH IRA FACT yet be sure to do so.

* Some good non-tax advice from Bruce, the MISSOURI TAX GUY, in “Paying Off Debt the Smart Way”.

* The Treasury Department has initiated a new program to increase the direct deposit of tax refunds for low and moderate income “unbanked and underbanked Americans”. Click here for the press release.

* PRO TAX has an informative article on “Tax Considerations of Disabled Taxpayers”.

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* Back in early August I discussed the 2010 IRS Tax Forum held in NYC, which I attended on the first day. TAX MAMA Eva Rosenberg discusses her experience with this year’s Las Vegas forum, which is usually the most crowded, in “A Trip to the IRS Tax Forums” (be sure to check out both Page 1 and Page 2).

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TTFN

YOU COULD HAVE KNOCKED ME OVER WITH A FEATHER!

Wonder of Wonders, Miracle of Miracles!

On Friday, August 20th I sent an email to David Williams, Director of IRS Electronic Tax Administration and Refundable Credits and the person in charge of the new tax return preparer regulation regime who had made presentations on the new rules at both the NATP annual conference in Austin and the IRS Tax Forum in NYC, with questions and concerns about the exemption of CPAs and attorneys from the real “meat” of the regime.

I told him that he did a good job in explaining the rules in his presentations, adding – “I expect this is because you were a student of my fellow tax-blogger Mary O’Keefe”.

To my great amazement I received a reply on Tuesday, August 24th I received an email response from Mr Williams himself, which began “Sorry it has taken me so long to get back to you”!

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 had written to IRS Commissioner Shulman via postal mail back at the end of June (I included the text of this letter in my post “Dear Commissioner Shulman”). While I have received two (2) separate acknowledgements of my letter, neither actually from Mr Shulman, and each telling me my letter was being passed along to a lackey for response, I have yet to receive a substantive reply to my inquiry.

In his email reply David admitted – “and I do owe it all to Mary. :-)”

In response to my concerns he explained that CPAs and attorneys “currently enjoy a statutory exemption from any further government-imposed requirements. I try to point out in my presentations that we are approaching this effort via Circular 230. Since we're operating within that framework, we cannot impose new requirements on CPAs or attorneys.”

This is the same excuse for this exemption that was given by Karen Hawkins, Director of the Office of Professional Responsibility, when she addressed the NATP annual conference in Austin on the subject – so maybe there is something to it.

I have put the word out for information on this “statutory exemption from any further government-imposed requirements” for CPAs and attorneys – but have received no responses yet. If you are familiar with the specific federal law or Tax Code or Circular 230 reference that established this “statutory exemption” please let me know via Comment or email (to rdftaxpro@yahoo.com).

David’s email also briefly mentioned the recent lobbying efforts (see “AICPA Tax Vice President Tells IRS to ‘Slow Down and Get It Right’”) to exempt non-initialled employees of CPA and attorney firms, those who are actually preparing the 1040s that are signed by CPAs and barritors (not a typo - look it up). I expect that David, and the IRS, will stand firm on this issue and not give in to the AICPA or the ABA and the Congresspersons they have purchased.

I certainly thank David for his prompt and honest reply. It seems that so far the administration of the IRS new regulation regime is in good hands.

As a side note – this experience emphasizes that the best way to get a prompt and substantive response from a government agency, be it the IRS or the NJ Division of Taxation, is to email a specific person.

TTFN

LOOK IT UP

From the Merriam-Webster Online Dictionary –

ex•cre•ment noun \ ek-skrə-mənt\

Definition of EXCREMENT

(1) waste matter discharged from the body; especially: feces

(2) reality tv

— ex•cre•men•tal\ˌek-skrə-ˈmen-təl\ adjective
— ex•cre•men•ti•tious\-ˌmen-ˈti-shəs, -mən-\ adjective

Examples of EXCREMENT

(1) an ordinance that requires dog walkers to remove their animal's excrement from city streets

(2) MTV’s The Jersey Shore is a steaming pile of excrement

MORE ON THE PERAB REPORT - TAX COMPLIANCE

One of the three major focuses of The President's Economic Recovery Advisory Board (PERAB) REPORT ON TAX REFORM OPTIONS was on Compliance, with an eye toward closing the “Tax Gap”.

The report began this topic by telling us –

“Most taxpayers report and pay their taxes voluntarily and on time. Overall, the federal tax system achieves a high level of voluntary compliance with taxpayers paying about 83.7% of all taxes due in a timely manner.”

In discussing “General Approaches to Improve Voluntary Compliance and Reduce the Tax Gap” the report points out what many tax bloggers, myself included, have been saying for years –

“One theme we heard repeatedly was that voluntary compliance would be increased by having a simpler, more transparent and more easily understood tax system, and from stable and consistent tax law. The complexity of the current tax code results directly in involuntary errors and facilitates intentional evasion.”

The need to annually or semi-annually extend expiring tax benefits is a major contributor to confusion and non-compliance.

“The more certainty taxpayers have about the law and the more predictable the law is from year to year, the easier it is for taxpayers to comply with the law and the less likely it is for taxpayers to make unintentional errors. . . .In addition, temporary provisions are increasingly used for things like education credits, stimulus rebates, disaster area relief, loss carrybacks, or the first-time homebuyer credit. These changes are confusing to taxpayers and to tax professionals. Additionally, each year taxpayers must await reauthorization of expiring tax provisions like the Research and Experimentation credit, AMT relief, or the sales tax deduction. . . Expiring and temporary provisions and other changes to tax law increase the cost of compliance and create unpredictability for individuals, resulting in more confusion and mistakes.”

Just like the options listed for simplification, those for compliance, with one exception, are nothing new –

*Dedicate more resources to enforcement and enhance enforcement tools.

* Clarify the definition of an independent contractor.

*Increase information reporting and source withholding (mostly more third-party 1099s).

* Increase voluntary disclosure programs.

*Require all partners, LLC members, and S corporation shareholders who materially participate in the entity’s business to pay self-employment tax on business distributions.

There is one option that is new to me – Small Business Bank Account Reporting.

“In conjunction with a simplified tax accounting for small businesses that permits cash accounting, (described in the section on tax simplification) a small business would be required to use a designated bank account for all business receipts and expenditures that is segregated from any personal bank account {take note, June Walker – rdf}. The bank would be required to report the receipts and expenditures within the designated account annually.”

While I agree with the conventional wisdom that a business, no matter how small, should maintain a separate checking account, I am against having banks report specific activity in all business accounts directly to the IRS. Besides the privacy and related issues involved, this would also create a huge burden on banks - resulting in higher fees for business accounts. And its true benefit would be minimal, as crooks not wanting to report all income would easily find ways to hide money elsewhere.

Another option included in this section is to extend the holding period for the exclusion of gain on the sale of a personal residence from the current 2 out of 5 years to 3 out of 6 or 4 out of 7 and to increase the information reporting of principal residence sales (currently a Form 1099 is generally not issued if the gross proceeds is below the $250,000 and $500,000 limits). The hardship exemption (for death, divorce, job-change, etc) would remain.

The “Report on Tax Reform Options” issued by the President’s Economic Recovery Advisory Board did an excellent job of identifying the problems with our current Tax Code and system and the ways it has been perverted by Congress and the various Administrations. However, due to the ridiculous restrictions placed upon the Board by BO, it’s recommendations are merely a rehashing of previous suggestions and offer nothing new of real value.

One of the very few things that W did right during his eight years was to give his tax reform panel pretty much unrestricted carte blanche to investigate and review all tax reform options and scenarios, although once the report was published it was totally ignored.

The only value of this report will be if its existence is used as a starting point for serious discussion of tax reform by Congress and the Administration, and it is not buried away in some archive like the report of George W’s panel.

TTFN

WHAT’S THE BUZZ? TELL ME WHAT’S A HAPPENNIN’ – WEDNESDAY EDITION

THE BUZZ IS BACK!

* The IRS Summertime Tax Tip 2010-22 “Eight Things to Know If You Receive an IRS Notice” has some good information. Perhaps the best advice one can give regarding an IRS, or state tax authority, notice, which is not on the IRS list, is to give the notice to your tax preparer immediately.

* In “100-Plus Tax Breaks on the Line” at CNNMONEY.COM author Jeanne Sahadi tells us -

“When it comes to putting off assignments, college students have nothing on Congress.

Case in point: Lawmakers have yet to decide the fate of more than 100 tax breaks that either already expired at the end of 2009 or will expire by the end of this year.”

I agree with Jeanne when she says -

“Since it's a major election year in Washington, with hundreds of lawmakers trying to hold on to their seats, it's possible that many of the tax measures won't be decided until after Nov. 2 by a lame-duck Congress.”

I hope the IRS is thinking along the same lines and holds off going to press with the 2010 tax forms.

* Trish McIntire tells us about the “Kansas Tax Amnesty” at OUR TAXING TIMES.

* An item in the CCH daily tax headlines e-letter discussed testimony given at a recent IRS hearing on proposed PTIN user fees ) in Washington, D.C. The item, “Preparer Registration and PTIN Use Will Improve Transparency, Tax Professionals Tell IRS”, also pointed out -

“At the same time the IRS is moving forward with enhanced regulatory oversight of return preparers, Congress continues to debate whether to make competency testing and continuing education for unenrolled preparers required by law. The Taxpayer Bill of Rights Bill of 2010 (Sen 3215) would mandate competency testing and CPE for unenrolled preparers. Similar legislation (HR 5047) has been introduced in the House.”

If the mew regulatory regime is going to be part of a federal law, then here is where the testing and requiring of mandatory CPE in federal taxation can be extended to CPAs and attorneys. But don’t count on it – the AICPA and ABA have tons of money to spread around on the hill.

* The tax blogosphere has been buzzing about California Attorney General Jerry Brown’s lawsuit against Roni Deutch for “pulling an H+R Block” and screwing her tax debt resolution clients. Click here for the AG’s press release.

I do not know Roni personally, nor did I, or any clients or friends, ever have any dealings with her firm – so I cannot comment on the accusations. In the past she has linked to TWTP posts as “good reads” at TAX LADY and I have, on occasion, included posts from her blogs as items of interest in BUZZ installments. And her publicist sent me a free copy of her book, which I have still to read, a while back.

Roni responds to the claim in “Official Statement”at her TAX LADY blog.

What pretty much all of the posts say, and correctly so, is that nobody can promise those of you with substantial outstanding federal tax balances that by using their service you will pay “pennies on the dollar”. It just ain’t so – and you can take that to the bank!

* TAX GIRL Kelly Phillips Erb provides the real truth behind the Philadelphia “Blogger-gate” controversy in “Tax and the City: Philly Tax Takes on a Life of Its Own”.

“So, no vast conspiracy. No targeting bloggers. And no plan to try and silence free speech. No one was sitting around the Revenue Department searching online for Philadelphia bloggers. The City was acting on information that it got from the feds, something it does all of the time. It’s part of the normal information sharing that goes on (oh yeah, and states share information as between each other and the feds, too). A key difference this time was the scale of the notices and the speed at which information – even bad information – travels these days.”

Kelly hits the nail on the head, as she usually does, with her bottom line (the highlight is mine) -

“What’s really wrong with the City isn’t a $300 license for businesses – it’s just become a convenient scapegoat for a much more serious problem. We have a tax system that’s confusing and a bureaucracy that is out of control. And I dare say, that’s not restricted to Philly.”

* Joe Arsenault, of CAFÉTAX, has a good “Roth IRA Distribution Chart” at his newly launched ROTH IRA FACT website.

Joe’s new ROTH website is a great resource for info on the everything ROTH, and especially the special Roth conversion available for 2010.

* MISOURRI TAX GUY Bruce MacFarland provides “Tax Tips for Students with a Summer Job” and discusses “Tax Benefits for Job Seekers”. And of course there is Bruce’s regular Sunday “Reads From Last Week”. Glad to see Bruce is back at ALLTOP!
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* NJ residents may want to check out my post “Homestead 'Benefit' Applications To Be Mailed In September” at THE NJ TAX PRACTICE BLOG for an update on the benefit formerly known as the NJ Homestead Rebate.

* At DIANE KENNEDY’S US TAX AID Diane herself suggests that “The Internet is the Best, and Worst, Thing That Happened to Tax Planning and Preparation”.

In discussing the good, the bad and the ugly of the internet she rightfully points out, under bad, that –

“Unfortunately because anyone with a computer and Google can now see the various stages of the Bills, there is a lot of misinformation and just plain wrong and dangerous information floating around about {tax – RDF} bills.”

Her bottom line to the bad section is something to remember when wandering the internet –

“The morale of all of this: Make sure the person who wrote the article is the one publishing it. If they aren’t, check back to the source. When was it originally written and if it comes to taxes, is it written by a true expert?”

* I came across “Millions of American Taxpayers Make Money Off Federal Taxes” by Derek Thompson of THEATLANTIC.COM on my Yahoo home page.

The item discusses the disturbing fact that 15 million American households, representing about 10 percent of all taxpayers, receive more cash from the IRS than they contribute in federal income taxes and employment taxes. Thompson calls them the “Freeloading Fifteen”.

A agree with Derek when he ways –

“The way I see it, it does bother me that 10 percent of American families contribute net zero to the federal government even as they can vote on expensive programs to which they won't contribute, whether it's foreign wars or domestic entitlements. At the very least, it strikes me as an awkward civic deficiency.”

For some time now I have been saying there should be a true “minimum tax” of at least $100.00.

* Steve Trojan reports that the “IRS Warns of EFTPS Phishing Scam” at his BETTER BUSINESS BLOG.

* I love this comment from Professor Nellen in “Stop Studying and Act” at her 21st CENTURY TAXATION blog. It is apparently one of 5 recommendation she had previously sent to PERAB -

“#5. Stop studying and act. Our tax system has been the subject of many studies by government agencies, academics, think tanks, and federal tax reform commissions. Many of those reports describe weaknesses of the federal tax system and offer proposals for improvement. The reports address complexity, the tax gap, depreciation, penalties, global competitiveness, corporate integration, worker classification, and more. The most comprehensive and objective of them should be reviewed and used by the task force. Rather than continually studying the tax system, it is time to improve it."

Right on, Professor!

* Let’s end this installment of the BUZZ with some “Tax Humor” (mixed with good advice) from the TAX RESOLUTION UNIVERSITY.

TTFN

MY TWO CENTS

I don’t care how much of an entertaining “guilty pleasure” it may have been in the past. The new season of DANCING WITH THE ONCE WERES AND NO TALENT WANABEES must be boycotted. Anything that includes idiots from THE JERSEY SHORE and THE HILLS should be avoided at all costs.

THE LATEST VOLLEY

In his post “Preparer Costs Will Increase Some; Taxpayer Costs Will Increase More” my fellow tax blogger, and proven 1040 expert, Joe Kristan has sort of backed down from his contention that the additional costs incurred by preparers to comply with the new regulation regime will cause the cost of preparing a 1040 to substantially increase.

“I don't think I ever have said this will significantly increase preparer costs, though there will be an increase.”

Joe also says -

“For CPAs like me and attorneys who already meet CPE requirements, there will be time wasted on filing the same paperwork with a new agency, and, someday, on taking some pointless ‘competency’ test.”

Since CPAs, along with attorneys, are undeservedly allowed “off the hook” from testing and CPE requirements, the source of the bulk of the costs in money and time for the new regime, an individual CPA will, at most, have to spend 15 minutes online each year to pay his annual PTIN registration fee.

While hopefully CPAs and attorneys will, once the IRS comes to its senses or determines the need as a result of its tracking of preparer errors via the PTIN, eventually be subject to the same requirements as we less fortunate “previously unenrolled”, currently the only real additional burden of the new system will fall on the larger firms with un-initialed “underlings” who, more often than not, are the ones that are actually preparing the 1040s (I was one – a “para-professional” – at Delloite, Haskins + Sells over 30 years ago). These individuals will need to register, be tested, and take mandatory CPE in taxation – which will create additional costs for the firm. But these firms have multitudes of clients to whom to pass along these costs.

Let me repeat my rejection of the totally false defense that CPAs and attorneys must already meet CPE requirements. While I am sure that Joe, and other CPAs like him, do actually take many CPE hours in federal 1040 taxation annually, perhaps more then the 13 non-ethics hours that will be required, there is (and correct me if I am wrong) no specific requirement that a CPA must take even 1 credit hour in 1040 tax issues.

His main concern is that –

“More significant will be the costs borne by the taxpaying public. The additional costs and paperwork will lead many casual preparers to walk away from the business. This reduces the supply of preparers, while Congress does nothing but increase the demand. Reduced supply and increased demand means higher fees that will buy little increased quality.”

Is getting rid of “casual” preparers a bad thing? Would you go to a “casual” doctor for medical treatment? Or a “casual” lawyer if you are arrested? If a tax preparer is not “serious” about being competent and current in tax law then he/she is of no real benefit to his “clients”.

I agree that the new regime will cause some “kitchen table” preparers (that is actually how I started my own practice) - who have a basic knowledge of the 1040 and prepare a dozen or so returns for friends and family for a fee during the season – to walk away. But it may also cause some of these “casual” folks to think about a career, primary or secondary, in tax preparation more seriously and decide to expand their “practice”.

If the new regulation causes a taxpayer’s preparer to take additional annual CPE credits in 1040 law, and incur additional costs that are passed along to clients, this will certainly enhance that preparer’s knowledge and therefore increase the “quality” of his/her “product”.

Let’s face it – any regulation bureaucracy, government or otherwise, will create additional paperwork, costs, and potential for “agita”. There is no question that Joe is correct when he tells us that the new tax return preparer regulation regime will do so.

The question is do the benefits outweigh the costs of the new bureaucracy.

Will the regulation of tax return preparers reduce tax fraud and help take a bite out of the Tax Gap? Of course not! Regulation does not automatically reduce fraud. As I have said many times before – regulation of CPAs did not prevent the Enron mess, regulation of medical professionals does not prevent Medicare and other insurance fraud, and don’t get me started on narrators (aka lawyers – look it up).

Cheating taxpayers will still find accommodating unethical and downright crooked preparers (and vice versa). Most of these preparers already do not sign the returns they prepare – so they will remain “underground”. And those with no real knowledge of tax law who charge for returns produced by merely entering tax information into a software program will continue to produce “self-prepared” returns for their clientele.

The only possible benefit in this area is with the eventual IRS public education on the requirement to use a registered preparer who will sign the return, and if the Service, as promised by David Williams at the NATP annual conference and the IRS Tax Forums, begins to go after actual taxpayers who use unregistered preparers.

Here are the benefits of the regulation regime as I see them –

(1) The IRS has a legitimate need for a central registry of all those who prepare tax returns for a fee. As I have said before, this is what originally started the investigation into tax preparer registration and regulation.

(2) The new “Registered Tax Return Preparer” designation awarded to those who pass the test and take mandatory CPE credits will provide the taxpayer public with an indication of who, besides an Enrolled Agent, is at least minimally competent and remains current in 1040 preparation. Currently any cafone can hang out a shingle as a tax preparer, regardless of education, knowledge or experience. Taxpayers have absolutely no way of knowing, other than if as previously mentioned they have EA after their name, if a person who says they know how to prepare a 1040 actually knows how to properly prepare a 1040. I have seen and heard of the sign “Tax Returns Prepared Here” hung in the strangest places.

(3) The RTRP designation would put the competent, experienced, and ethical previously "unenrolled" preparer on an equal footing with the CPA in the eyes of the general public. It would dispel the unfounded "urban tax myth", perpetuated perhaps more by uninformed journalists and bloggers than by the CPA community, that only CPAs are tax experts. CPAs would no longer erroneously “own” the tax preparation business, as the AICPA has told a member it believed they did.

For as long as I have been in practice I, a competent, experienced, and ethical tax preparer, have been lumped in the same category as the individual who has read the IRS instruction booklet and done his own return a couple of years and now decides to hang a sign in the window and prepare tax returns in between haircuts at the barber shop where he works, or who buys a tax preparation software package and, without any previous knowledge, training or experience, uses it to prepare 1040s for a fee! As a Registered Tax Return Preparer I, and hundreds of thousands like me, can finally get the acknowledgement and respect we deserve!

So the bureaucracy will benefit all – the IRS, the taxpaying public, and an extremely large component of the preparer community.

I think that the new Registered Tax Return Preparer designation may slightly reduce the cost to taxpayers. Many taxpayers now use a CPA to prepare their returns only because of the above identified “urban tax myth”. It is a proven fact that the average cost for preparing a 1040 charged by a CPA is more then the average fee charged by a non-CPA. With RTRP’s on equal footing with CPAs, more taxpayers will choose to use RTRPs. While the fee charged by a RTRP may slightly increase, in order to remain competitive CPAs will need to reduce their 1040 preparation fees.

Joe adds –

“Rather than pay the increased costs, some taxpayers will stop getting help on their returns altogether and either self-prepare or drop out of the system.”

I do not think that increased costs, which I do not accept to be material in the first place, will cause more taxpayers to self-prepare. Many of my clients are smart enough to be able to prepare their own returns, but just don’t want to be bothered taking the time, and will accept modest fee increases the same way they accept increases in the cost of gas, food or other items. And with Congress continuing to make the Tax Code more and more complicated most taxpayers accept that tackling their return is beyond their ability – which is why it seems more individuals are seeking professional help each year.

About 30% of taxpayers have turned to software packages to self-prepare, but as more and more of these returns are questioned or audited, and users realize that the “Turbo Tax Defense” does not fly unless you are a highly placed government official, I think those who now use software to prepare incorrect returns will soon turn, or return, to tax professionals for help.

TTFN

STUFF AND SUCH

I’m back! Here is a compilation of “stuff” of interest.

(1) First – did you see Saturday’s post on THE REPORT ON TAX REFORM OPTIONS? If not be sure to check it out. I will probably be discussing the report further in future posts.

(2) In the August 21st BUZZ post I quoted TAX MAMA Eva Rosenberg’s blog as saying -

“His proposal was rejected 57-42 on a party-line vote because, as one Senator explained, ‘passage of such a requirement would restrict home ownership to only those who can afford it.’”

A reader send me a comment (which I published at the BUZZ post) stating that according to SNOPES.COM, the internal quote from the Democratic senator is incorrect. The “mis-quote” came from “Semi-News”, a satire publication which draws upon the news of the day (a la The Daily Show). Here is what SNOPES had to say (highlight is mine) -

“Senator Bob Corker had proposed an amendment (S.A. 3955) to the ‘Restoring American Financial Stability Act of 2010’ which would have (among other things) instituted a residential mortgage underwriting standard requiring a five percent down payment from prospective home buyers. Democrats did oppose the amendment, with one reason given by Dodd being that it would have disadvantaged home buyers who had good credit and solid incomes but lacked the cash to make required down payments.”

Duh – doesn’t not having the cash mean you can’t afford it?

No person or family should even think about buying a home unless they have enough cash saved for a 20% down payment! And I still say that Congress if full of idiots.

(3) I was indeed happy to see that practicing tax attorney, and fellow tax blogger, Kelly Philips Erb tells it like it is in her post “IRS Proposes To Amend Rules Regulating Tax Professionals”, in which she discusses the topic as it applies to Circular 230.

“I know tons of attorneys who don’t know a thing about tax beyond what they learned in ‘baby tax’ in law school. And trust me, you don’t want those folks working on your forms 1040. But hey, if they have JD after their names, the IRS thinks it’s okay.”

(4) While I usually limit my internet “wanderings” to tax blogs, Bruce MacFarland, aka the MISSOURI TAX GUY, regularly visits several great personal finance blogs. I always find good reading in Bruce’s weekly Sunday “Reads from Last Week”.

Last Sunday’s installment led me to excellent “Education and Wealth: You Don’t Need a College Degree, But You Need an Education” by Ryan at CASHMONEYLIFE, which echoes my sentiments -

“College is overrated. There, I said something you’ve probably suspected since you were in high school and may have confirmed several years after you entered the workforce. You probably know many people who excelled in college and can barely string together a cohesive thought. And you probably know many successful people who never went to college, barely made it through college, or work in a field unrelated to their degree.”

.

And -

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“An education is different from a degree. An education can be formal, informal, self-directed, on the job training, professional licenses and certifications, or any other form of education.”

I have always said that, contrary to what parents believe, college is not for everyone. A self-taught person or one who has studied at an alternative post-secondary institution deserves the same respect, and sometimes more, than a college graduate.

(5) According to “States (And Bill Gates Sr.) Look to Soak the Rich” by Ashlea Ebeling at FORBES here are the top ten states with regard to high top tax rates –

1. Hawaii: 11% (income over $400,000 (couple), $200,000 (single))
2. Oregon: 11% (income over $500,000 (couple), $250,000 (single))
3. California: 10.55% (income over $1 million)
4. Rhode Island: 9.9% (income over $373,650)
5. Iowa: 8.98% (income over $64,261)
6. New Jersey 8.97% (income over $500,000)
7. New York: 8.97% (income over $500,000)
8. Vermont: 8.95% (income over $373,650)
9. Maine: 8.5% (income over $39,549 (couple), $19,749 (single))
10. Washington, D.C.: 8.5% (income over $40,000)

The “kick-in” income is an important factor. Maine and Washington have a top tax rate of 8.5%, #9 and #10 on the list, but this rate kicks in at a very low level of income, as does Iowa’s 8.98%.

Please note that the above tax rates are for 2009. The article tells us – “Those increases all continue this year {2010 – rdf} with one exception--New Jersey’s rate hike was for 2009 only, which means that state has dropped three spots to No. 6 on our new list of the 10 with the highest individual state income tax rates”.

TTFN

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BTW – A new BUZZ installment will appear this Wednesday!

BEACH BLANKET BINGO

Thomas Morrissey, Producing Artistic Director of the ReVision Theatre in Asbury Park, emailed me to ask what I thought of the company’s production of THE BIKINIS. Below is my response/review-

My initial interest in seeing the ReVision Theatre’s world premiere production of THE BIKINIS, presented in the section of the old Casino building at the Ocean Grove/Asbury Park NJ border that once housed a carousel, concerned the venue. The fact that the production showcased the music of my youth, specifically the early 60s, sealed the deal.

I learned of the production from a review in the Asbury Park Press that I read on a midweek visit to the Jersey shore. Upon returning home I booked a ticked for last Sunday evening online.

It was a great performance. It was good to hear all those songs of the 60s and beyond performed live. The 4 BIKINIS themselves (Cheryl Freeman, Annie Golden, Kathy Morath and Karyn Quackenbush – all professional musical theatre veterans) were excellent, both in their solo performances and their group numbers.

The show is in the same mold as off-Broadway’s THE MARVELOUS WONDERETTES, which features the music of the 50’s – and just as good.

The actual plot of the musical is really immaterial – just a way to “explain” the context of the performance and to provide some back story filler between songs. The idea chosen is as good as any other option. My only complaint with the plot, which seems to have been shared by other reviewers, is that nobody in their right mind would turn down $1 Million to hang on to a spot in a trailer park (excuse me - mobile home resort). The specific back-story of the BIKINIS group was much more interesting and well-written.

My only other complaint is with the Second Act construction. The First Act was practically perfect – the girls reminiscing about the summers of their high school years, and the progress of the group toward its goal to be on AMERICAN BANDSTAND, in between songs from the period (“It’s In His Kiss”, “Shop Around”, ‘Under the Boardwalk”, ‘Where the Boys Are”, etc). The Second Act was all over the place, going from the “summer of love” to the disco era. While the performances in the Second Act were just as good as those of the First, and again it was good to hear these songs again, it strayed from the basic premise. And why was an original country-western song thrown in among the “covers”. I can understand the two original 60’s-styled songs in the show – the two sides of the group’s demo 45 – but the CW number, while again very good, was out of place.

Perhaps the show should have began in 1962 instead of 1964 and run without an intermission. Or the Second Act could have dealt more with the girls’ college-age years of 1967 through 1971, a period that was pretty much given only minimal representation in the musical, showing the contrast between the music, and the culture, of the two distinct periods.

I was impressed with the layout of the small space available within the “Carousel Building”. The seating was arranged to accommodate a relatively large audience – bigger than I expected, and the stage area was not cramped. It looked to me like a full house on Sunday night. While this site is especially suited for summer performances I would hope that with the right enhancements it could be turned into a year-round venue.

I was not aware until the night of the performance that this was the third summer that ReVision Theatre had done shows just off the Boardwalk at the “Carousel House”. I am truly sorry that I missed the previous productions. But as a new member of ReVision Theatre I will not miss out on future offerings.

Unfortunately the last performance in Asbury Park was yesterday. However it is next scheduled to appear in Long Island and, I expect, will continue to travel thereafter. Keep an eye out for it and see it if it comes to your area.

TTFN