Saturday, October 31, 2009


HAPPY HALLOWEEN! Don't party too much!

Lots of good buzz, and good topics for discussion, in today’s BUZZ -

* A “tax tweet” from taxtweet (aka Kay Bell, author of the DON’T MESS WITH TAXES blog) “turned me on to” a good post on retirement planning from personal finance blogger David Weliver of MONEY UNDER 30 titled “23 Things Beginners Absolutely Must Know About Saving for Retirement”.

* Bruce MacFarland, who recently returned to tax blogging after a temporary hiatus, has a new “location” and a new look for his “Missouri tax guy” blog. Click here to check it out.

* Robert B. Teuber, who writes the TAX LAW FORUM blog, also writes the Taxing Thoughts column at the Wisconsin Law Journal. His has a good column on “The Best Tax Advice” in which he discusses “what I believe to be the two most important tax related concepts”.

What are they? “Those two rules are: (1) Open letters from the tax authorities; and (2) Keep good records.”
Good advice indeed!
* John Sheely, a NYS EA who has been keeping me on top of the NYS tax preparer registration issue, tells us about the “Latest Version of Form I-9” at his blog. Don’t know what a Form I-9 is – check out John’s post.

* has released its annual list of “Top-Earning Dead Celebrities”.

Topping the list is Yves Saint Laurent, earning $350 Million. I was glad to see Rogers and Hammerstein at #2 with $225 Million. Michael Jackson is #3 with $90 Million, beating out #4 Elvis Presley, whose estate earned $55 Million. Marilyn Monroe is no longer on the list. Albert Einstein, #IX with $10 Million, still surprises me.

* TAX GIRL Kelly Phillips Erb answers “Ask The Tax Girl” questions from two women at both ends of a marriage. She advises a new bride in “Wedding Dress Donations” and a new divorcee, who just “got rid of the husband”, in “Donating An Engagement Ring”.

Speaking of marriage – a belated Happy Anniversary to Kelly.

* Kelly also had the best blog quote of week - “You know what they say in Congress, if it’s not broke (enough), keep trying until it is…” – from her post “First Time Homebuyer’s Credit Likely Expanded”, which tells of proposed legislation to continue the folly.

Kay Bell also discusses the proposed extension of the First-Time Homebuyers Credit in her post “Reconfigured Home Buyer Tax Credit”. Kay tells us -

The $8,000 credit would continue for first-time buyers.

A reduced credit of up to $6,500 would be available to repeat buyers who have owned their current homes for at least five years.

Both credits would be available to home buyers who sign sales agreements by the end of April 2010.

Prospective homeowners then would have until the end of June to close on the properties

No mention in either post whether Congress will require any documentation in order to claim the credit – or if, like the current credit – all you have to do to get the money is ask for it.

* On this very issue – TAX MAMA Eva Rosenberg offers some advice to Congress in her commentary “Why Can't the First Time Homebuyer Credit Fraud Be Prevented?” at Accounting Web.

Since the IRS has provided us with specific reasons why it could not do more to prevent the rampant fraud involved with this expensive credit Eva correctly observes, “Congress has time to fix them right now, while they are preparing the First Time Homebuyer Credit extension and expansion for a vote next week..

The biggest problem – the IRS was given authority by Congress to pay the credits, but not to require documentation of an actual, qualifying home purchase.

Eva’s simple solution – “have Congress authorize IRS to require document of actual, qualifying home purchase before releasing the funds.”

Right on, Mama!

* The NATP weekly email newsletter tells us that there has been introduced a bill that does just that (highlights are mine) –

Georgia Representative John Lewis has introduced H.R. 3901, a bill that would enhance the administration of, and reduce fraud related to, the first-time homebuyer tax credit, among other things. The proposal would disallow a credit to anyone who has not attained age 18, require a HUD closing statement to be attached to a return claiming the credit, and prevent a taxpayer from purchasing a home from a spouse’s family member.”

* HR 3901 also includes an unrelated item (highlight is not mine) –

“. . . a proposal to mandate e-filing for all tax return preparers who file more than 100 returns. The provision, if enacted, would become effective for tax returns filed after December 31, 2010.”

I will say it again and again – such a mandate must provide tax preparers required to so do with a free way of submitting tax returns electronically online at the IRS website (without having to use a “third-party”), and also allow clients who do not want their returns e-filed to “opt out”, like New Jersey’s NJWebFile option (one of the very few times when another government body should actually do something the way the State of NJ does), or provide tax preparers with free e-filing software.

I sympathize with the IRS desire to do away with paper filing – but I am damned well not going to go out and needlessly spend thousands of dollars up front, and hundreds more each year, to purchase flawed tax preparation software, and annual updates, just to make life easier for the IRS.

Joe Kristan of the ROTH AND COMPANY TAX UPDATE BLOG reports that at least the requirement for e-filing will allow clients the option to “opt out” in his post “Mandatory Electronic Filing for Paid Preparers?”. In the post Joe correctly predicted that I would have something to say about the issue.

* Joe also “turns us on to” a new tax blog by lawyer Hani Sarji titled FUTURE OF THE FEDERAL ESTATE TAX that discusses just what the title suggests.

* The IRS has issued a draft of the 2009 Form 1040. Click here to check it out.
Bruce, the MISSOURI TAX GUY, tells about the changes in the form in his post “Form 1040 ‘New for 2009, Filing’
* Roni Deutch gives us a lesson in “Tax Challenges of Being a U.S. Citizen Abroad”, not at her TAX LADY blog but at her TAX HELP blog.

* The IRS Information Reporting Program Advisory Committee has issued a 145-page report with recommendations on a variety of tax administration issues. Click here to download.

Among the more than 50 recommendations are:

• Creating a new form and modified rules on information reporting of payments made in settlement of payment card and third party network transactions.
• Reporting of customer’s basis in securities transactions.
• Creating online Form W-4 instructions for non-resident aliens.
• Withholding on certain payments made by government entities.
• Providing additional guidance to government entities that must comply with the withholding provisions.
• Permitting payers to issue payee statements showing only the last four digits of a payee’s TIN

Let me echo the call for “Reporting of customer’s basis in securities transactions”.

* Trish McIntire discusses a very controversial issue of the tax preparation business in her post “The RAL Question” at OUR TAXING TIMES. The RAL in question refers to a Refund Anticipation Loan.

The post discusses the fact that banks are seriously scaling back on the fees and incentives they previously paid to tax preparers to offer the product. Reacting to justifiable complaints about the usurious nature of the interest rates charged, banks are forced to reduce their annual percentage rates – but, of course, they don’t want to reduce the profits they make from RALs.
Trish is one of the competent, ethical independent tax professionals who feels forced to offer the Refund Anticipation Loan option to remain “competitive”. She says of the product –
They have been abused by the banks offering them, some preparers and many taxpayers. But they are a key reason for the growth of e-filing and they have helped many taxpayers in a time and money crunch.”

Trish explains that offering this product to clients takes up much valuable time –
I will spend an extra 15 to 30 minutes on a tax return when there is a RAL/RAC involved making sure the taxpayer qualifies, getting IDs, completing the application. Then there is printing the check, contacting the client, explaining why they weren't approved, and keeping all the paperwork for years.”

I do not like Refund Anticipation Loans. They are extremely expensive, usurious being the operative word. I have spoken out against RALs for years. I feel very strongly that tax preparers should not be permitted to offer RALs, as there is a real potential for arbitrarily inflating refunds to increase the amount of the RAL and thereby increase the corresponding fees and commissions. Last Thursday’s TWTP post indicated that many consumer protection organizations oppose RALs for many good reasons.

Trish says processing a RAL takes up a lot of time. As I like to say, as a tax professional during the tax season I barely have time to relieve myself let alone do anything that does not directly involve preparing a 1040 (or 1040A). There is no time to waste on an item that, however legal, is borderline ethical in the first place.

Now that, as Trish puts it, “the banks want to keep their profit while shafting the ones doing the actual work”, I would hope that Trish will seriously reconsider offering RALs during the upcoming tax season.

BTW, I will be discussing the RAL issue in more detail in one of next week’s posts.

* What was “The True Cost of Cash for Clunkers”? Bill provides one opinion at APRIL15.COM.

* Since today is Halloween I must include at least one holiday-specific tax post. Prof Jim Maule’s as usual scholarly and well-documented “Unmasking the Deductibility of Halloween Costumes” at MAULED AGAIN certainly fits the bill.

Regular followers of TWTP will find interesting the identity of the tax pro to whose advice the Professor is responding.

* I am sure we are all glad to know that “House and Senate Prevent ‘Cow Tax’ - Flatulence to Remain Unregulated”.


Friday, October 30, 2009


It’s “That Time of Year Again” – time to do your year-end tax planning.

The basic concepts of five of the posts I wrote for a Year-End Tax Planning Series titled “It’s That Time of Year Again” back in October and November of 2007 will probably still apply. Before I go any further I suggest you read over these posts. As you do you can, for the most part, substitute 2007 and 2008 with 2009 and 2010.






And here is some tax information that should be considered from another Fall 2007 post –

I have always told my clients that, for tax purposes, you should get married early in the year and have children late in the year. Your filing status is determined by your situation on the last day of the year – December 31st. If you get married on December 25th you are considered by the IRS and your state to be married for the entire tax year, and must pay tax accordingly.

As I mentioned in a recent post, the marriage penalty is alive and well in the Tax Code. If both husband and wife work they will most likely pay more income taxes as a married couple, whether filing joint or separate, then as two single filers. Since you are going to pay for the privilege for the entire year no matter when you tie the knot, by marrying early in the year you get to enjoy the corresponding benefits (?) of marriage for most of the year

You can click here to download a “Year End Tax Planning Worksheet”. And here to learn what is new in taxes for 2009.

Year-end planning will be somewhat difficult this year as we really do not know what taxes will be like for 2010. It had originally been thought that BO would attempt to totally revise the Tax Code in 2010. But recent remarks by Treasury Secretary Timothy “Turbo Tax Screwed Up My Taxes” Geithner leads us to think this may not happen. As Kay Bell reported in her post “Geithner Talks (a little) About Taxes”, which was included in a recent BUZZ edition –

Asked about the prospects for tax reform, Sheppard reports that Geithner dodged the question and indicated that it would be far down the line. Economic growth and public confidence about the economy's future take precedence, he said, followed by deficit reduction, which would require tough political choices.

With those items before it on the policy to-do list, it's probably safe to say that Obama's stab at tax reform is going to suffer the same sad fate as did Dubya's tax revamp effort

So it is unsure if there will be any substantial tax changes for 2010. The general rule is that when in doubt follow traditional year-end strategies.

What we do know is that the special “0%” tax rate on qualified dividends and long-term capital gains will expire on December 31, 2009. So, depending on your level of income, you should do what you can in the next two months to take maximum advantage of this special rate.

The following items, as they exist under current law, should also be taken into consideration when formulating your year-end tax plan.

The items that have become known as “extenders” – such as the above-the-line deductions for educator expenses and tuition and fees, the option to deduct state and local sales taxes instead of state and local sales taxes, and increased AMT exemptions among others, as well as several special deductions allowed for 2009 only, will all expire on December 31, 2009. So 2009 may be your last chance to claim these items. I will put together a list of expiring tax breaks for a future post.

Personal exemptions and total standard deductions are no longer reduced based on Adjusted Gross Income (AGI). So 100% of personal exemptions and allowable itemized deductions are allowed for all taxpayers for 2010.

Starting in 2010, individuals with more than $100,000 of modified Adjusted Gross Income are free to switch a traditional IRA to a Roth IRA. For conversions in 2010, taxpayers can spread the tax due over two years. Half the tax will be due in 2011, and the remaining half will be payable in 2012. Removing the limit on conversions effectively eliminates the income limit on contributions to Roth IRAs. A taxpayer with income too high to use a Roth will be able to contribute to a traditional IRA (which does not have income limits for contributions) and immediately convert to a Roth.

Let me know if you have any general questions about 2009 year-end tax planning.


Thursday, October 29, 2009


A post at 21st CENTURY TAXATION by author Annette Nellen, CPA/Esq., tax professor and Director of the MST Program at San José State University, which was titled “Regulating Tax Return Preparers” led me to her article at, also titled “Regulating Tax Return Preparers”, which in turn led me to testimony given by Jean Ann Fox, Director of Financial Services for the Consumer Federation of America at the June 30th IRS public forum on Tax Return Preparer Review.

I had overlooked this testimony during my original review of this public forum because I concentrated my attention on the presentation made by the Tax Preparer Panel, which included representatives of various membership organizations such as NATP, NEA and NSA.

The Consumer Federation of America is an advocacy, research, education, and service organization that deals with such issues as health, insurance, financial services, agriculture, food safety, housing, firearms, product safety.

The testimony, supporting the regulation of tax preparers, also included extensive comments on the evils of Refund Anticipation Loans (RAL). The CFA and other similar consumer protection and education organizations, and I, have been talking and writing against usurious RALs for years.

The presentation stated that “One of the Key Reforms to Prevent Abuses by Tax Preparers is to Ban Refund Anticipation Loans”. Here are some of the facts that were presented in the testimony –

For a typical $3,000 RAL, consumers pay finance charges that range from $62 to $110. If all fees are used to compute the cost of this ten day loan, the annual percentage rate ranges from 50 to nearly 500%, depending on the size of the loan.

Tax refund loans are marketed mostly to low-income taxpayers. IRS data indicates that 85 percent of taxpayers who applied for a RAL in 2007 had adjusted gross incomes of $38,348 or less. In 2007 nearly two-thirds of RAL borrowers (5.44 million families) received the Earned Income Credit, the nation’s largest anti-poverty program
{that highlight is mine – rdf}.

Mixing tax preparation with refund anticipation loans has a negative impact on the integrity of tax administration. This promotes tax fraud by preparers . . .

{National Consumer Law Center – rdf}, CFA and other consumer groups submitted extensive evidence indicating that RALs do provide tax preparers with an incentive to inflate refunds and cited statements by fraud experts and IRS criminal enforcers that RALs aid thieves in commission of tax fraud.”

I was pleased to see that the testimony also stated that the “IRS Should Provide Free Electronic Tax Return Filing”.

The CFA feels that –

A free direct electronic filing program at is long overdue. Americans have been able for years to apply for federal student financial aid on and for Social Security benefits at Many states make it possible for citizens to file state tax returns electronically for free.”

And that –

Enabling taxpayers to file electronically for free with the Internal Revenue Service will benefit taxpayers tremendously. It will save taxpayers the fees charged by some commercial preparers for electronic filing. It will permit electronic return filing without the opportunity for commercial marketing of extraneous products and services {this opportunity now exists under the current IRS online “Free File” program – rdf}. By allowing free direct electronic filing with the IRS, taxpayers would be able to bypass commercial preparers that might exploit or share their personal, confidential tax information for non-tax purposes.”

As I have mentioned many times before, New Jersey provides for free online electronic filing of many NJ-1040s for full-year residents at NJWebFile. Unfortunately there are restrictions on the amount and type of information that can be submitted via NJWebFile, so the system does not allow for universal electronic filing of state income tax returns. The number of W-2s and 1099s per return are limited, and those who report income from the federal Schedule C and partnerships and subchapter S corporations cannot use NJWebFile.

As a NJ tax preparer I am required by law to file NJ state income tax returns electronically, unless the client elects to “opt out” and signs a form to make the election.

I do not file my federal returns electronically because I do not use tax preparation software and I refuse to give the IRS my fingerprints.

I have said it many times before - if the IRS would allow taxpayers, and tax professionals, to file federal income tax returns directly with the IRS online for free I would gladly submit the 1040s (and 1040As) I prepare in this manner.

In her presentation Ms Fox also encouraged the IRS to resume work on its Customer Account Data Engine (CADE) return processing system. According to Fox, the IRS CADE system would allow the Service to issue refunds in a few days, instead of the current 8 to 15 days it takes to issue a refund. But “apparently the IRS stopped work on CADE”.

The CFA testimony makes the following conclusion –

The IRS should ban loans secured by expected tax refunds and institute licensing and supervision of tax preparers in order to safeguard consumers and the tax system. In addition the IRS should speed up the processing of tax refunds and make direct free electronic return filing available for taxpayers.”

A conclusion that I can agree with 100%.


Wednesday, October 28, 2009


* Joe Kristan starts the ball rolling this week with the post “Top Scientists: Tax Simplification Fights Fraud!” at the ROTH AND COMPANY TAX UPDATE BLOG.

It seems that a scientific study has proven what we tax professionals have known for years –

Queensland University of Technology visiting Professor James Alm said economics experiments showed that a simple tax system led to more honest reporting in tax returns and thus greater revenue.”

But such a system is only a dream, for, as Joe points out –

Unfortunately, while tax simplification is only good for all of us, it is hell on the Iron Triangle of lobbyists, legislative fund-raisers, and those who have learned to game the system at the expense of the rest of us.”

* The weekly NATP member email newsletter brings us this information from the IRS –

IRS to Offer "Solution Saturday" on November 7

The IRS will offer a new outreach event called Solution Saturday at five IRS taxpayer assistance centers on Saturday, November 7, to help taxpayers in tough times.

Solution Saturday is primarily for individual and business taxpayers, but the IRS will accommodate tax professionals by scheduling appointments for up to two clients.

In addition, the IRS invites you to refer other clients experiencing tough times for help resolving tax issues during Solution Saturday.

IRS assistance on Solution Saturday will be available from 9 a.m. to 2 p.m. (local time) on November 7, 2009, at the following taxpayer assistance centers:

Atlanta – Atlanta Summit Building, 401 West Peachtree St. NW, 404.588.5444
Dallas – Federal Building, 4050 Alpha Rd., Farmers Branch, 972.308.7997
Detroit – McNamara Federal Building, 477 Michigan Ave., 313.628.3120
Los Angeles – Federal Building, 300 North Los Angeles St., 213.576.4130
Philadelphia – William Green Federal Building, 600 Arch St., 215.861.1902

Tax professionals and taxpayers are encouraged to call for a Solution Saturday appointment at one of the above numbers. During Solution Saturday, a cross-functional team of IRS personnel will:

• Help resolve balance-due and delinquent return accounts.
• Answer offer-in-compromise and other tax law questions.
• Help with account inquiries.
• Prepare tax returns

The NJ-NATP website has more detailed information on the Philadelphia event.

* Fellow tax blogger John Sheeley “tweeted” me and his other followers that “IRS has launched a mulimedia website to explain tax changes”. The latest IRS video is on “How to Check Your Tax Withholding”.

* Russ Fox comments and expands on my 2-part series on the obligations, responsibilities and requirements of a tax preparer in his post “The Responsibilities of a Tax Preparer” at TAXABLE TALK.

Russ devotes much of TAXABLE TALK to talking about “Bozo” tax preparers and tax cheats, but feels, rightfully so, that –

Luckily, most members of my profession are ethical and are looking out for the interests of the client.”

A sincere thank you to Russ for the kind words about me in the post.

BTW, in case you were wondering, Russ also points out that “‘The Producers’ Doesn’t Work in Real Life”. FYI, the song “I Want to Be a Producer” from the musical version is my anthem.

* Kay Bell tells us about one option for the federal estate tax in “Estate Tax Exemption Hike, Rate Cut” at DON’T MESS WITH TAXES.

* And the beat goes on! Stacie Clifford Kitts valiantly once again explains the true meaning of “What Is A Professional” to the deluded (aka offending) blogger in her post “For Heaven's Sake - Throw Down Response” at STACIE’S MORE TAX TIPS BLOG.

If I may be permitted to quote my own comment to "Missouri tax guy" Bruce’s much commented-upon post on the subject-

You, I, those who have submitted the above supportive comments, those who have submitted comments elsewhere, and other tax bloggers have all properly and eloquently pointed out that the common, and universally (except for one) accepted, definition of a “professional” is someone who is educated, trained and experienced in a trade, profession or activity, complies with the rules and regulations and standards of that trade, profession or activity, AND is paid for working in that trade, profession or activity.

Being a professional in a trade, profession or activity does not require licensure or certification or official acknowledgement from any government regulatory office. A professional does not need a third party to hold him/her to professional standards – a professional can on his/her own hold himself/herself to professional standards.

There is no basis in fact or practice for the opinion expressed in the offending blog post.

The offending post has nothing whatsoever to do with, and adds nothing to, the debate on regulating tax preparers.

The purpose of the offending post was to be contrary and to draw attention to the author, and not to provide any intelligent discussion on a controversial and important issue.

The offending post was an insult to about half the population, and an apology is called for.

That said, let’s not give the offending blogger any more 'attention'. Let us spend our valuable time discussing more important issues
Stacie - hope you are feeling better!
* “And You Didn’t Think Taxes Were Funny”. A “tweet” from fellow tax pro Hal Leahy of Florida led me to this post from CPA John Brian Fast.

My mentor Jim Gill used to say that we should write a sitcom about our storefront tax office, but we would probably never get on the air as the networks would think our stories were too unbelievable.

* I was going to end on an “Always Leave ‘Em Laughing” note with the tax jokes post. But instead let’s end with a non-tax but timely post from TAX LADY Roni Deutch on “How to Have a Recession Friendly Halloween”.


Monday, October 26, 2009


Last week I discussed, in a 2-part post, my legal and ethical obligations, responsibilities and requirements, to my practice, my clients, and the IRS and state tax authorities, as a paid tax preparer.

What if, while reviewing a prior year’s return, I discover an error made by the client or another tax preparer – either in favor of the client or in favor of the government? Or if, after preparing a tax return myself, I discover an error or omission, either on my part or made by my client? What are my legal and ethical obligations, responsibilities and requirements in such a situation?

If I discover an error on a return, regardless of who prepared the return, I am obligated to report the error to the client and advise him/her that he/she should file an amended return. That is the extent of my legal and ethical obligation. I am under no obligation to prepare or file an amended return, nor am I under any obligation to notify the IRS or state tax authority of the existence of the error. All I must do is inform the client that the error exists and that an amended return should be filed to correct the error.

If the client asks me to prepare an amended return I will gladly do so. If the client does absolutely nothing that is not my problem.

Let me quote from IRS Publication 470

Any unenrolled preparer who knows that the client has not complied with the revenue law, or that the client has made an error in or omission from any return, document, affidavit, or other paper that the client is required by law to execute in connection with any matter administered by the {Internal Revenue} Service, shall advise the client promptly of the fact of the noncompliance, error, or omission.”

If I discover “after-the-fact” that I have made an error on a client’s tax return I will automatically prepare and send to the client an amended return(s) free of charge. Whether or not the client actually submits the amended return(s) is of no concern of mine. If there is a balance due on the amended return(s) and the client submits the return(s) with the additional tax – that is fine. But if the client simply files the return away and does not pay the additional tax due – that is also fine. It is his/her choice.

If, while attending a continuing education class, or after reading a blog post or article, I discover that I did not claim a deduction or credit to which a client was entitled on a return I prepared, I will automatically prepare an amended return and send it to the client. If I had to prepare an additional form or schedule that was not filed with the original return to claim the deduction or credit I will bill the client for the additional amount I would have charged if I had filed the additional form or schedule with the original return.

If, as occasionally happens, Congress passes a tax law change, or the Tax Court issues a decision, or the IRS has a change in heart, that is retroactive to “all open years”, and this change would generate an additional refund for a client, I will automatically prepare amended returns for all applicable “open” years and bill the client the normal fee for an amended return and appropriate additional forms or schedules.


Saturday, October 24, 2009


* Before I get underway a thank-you and tip o’ the hat to TAX GURU Kerry Kerstetter for the above picture.

* While I have had my “Final Word” on the topic of “Who Is A Professional” others continue to weigh in on the subject, supporting the position of Bruce MacFarland (the Misourri tax guy) and myself and objecting to the initial argument by the “offending blogger”.

Stacie Clifford Kitts, a CPA, has her say in “For Cry'in Out Load - Another Tax Blog Throw Down” at STACIE’S MORE TAX TIPS. Stacie says of the offending blogger –

Yeppers - how bored do you suppose this guy was to come up with that? Although his post really seems to be directed at unenrolled tax preparers, the post manages to be insulting to - well - just about anybody who has worked hard to obtain a position but did it without a college degree or a state license.”

Comment #7 to Missouri tax guy Bruce MacFarland's supportive post “A Little Professionalism, If You Please” from Kim B, who is “not a tax preparer (although I used to be years ago)” really gets to the point and says what needed to be said –

I find it absolutely ludicrous that this tax lawyer and CPA . . . thinks he’s somehow better than others in this profession/business just because he has a piece of paper from a school(s) saying he’s taken classes on the subject or because he took and passed some regulatory state test(s) that allow him to display a plaque on his wall. It’s actually not only quite insulting to so many preparers and people in this PROFESSION who are great at what they do and make their living at it . . . but it’s also insulting to millions of other hard-working people who go to work each day just like him and do their job efficiently and help keep this country running, but by his definition are not professionals. It just really shows such an arrogance.”

And, if I can be permitted one more on the money quote –

Then the audacity of this man to go on to continue to argue the point – almost to death, showed me nothing more than his self-righteousness and elitist attitude to get in the last word, somehow thinking that was going to make such a difference or impact on us all.”

But, of course, the cafone continues to maintain that those who earn their living in a profession are not professionals – and continues to blather on about his twisted logic ad nauseum. Hey, we get it. You are wrong, but stubborn, and can’t admit that such a thing could be possible. So let’s move on to more important tax topics.

* Trish McIntire of OUR TAXING TIMES continues her series of “Buyer Education” with an important warning in “Contingency Fees Are a No-No!”. The highlight in the following quote is mine -

You call a new preparer and of course you ask about fees. You probably won't get an exact quote but they should explain how they calculate fees. I charge by the forms required to prepare the return. (I'll add a time charge if I need to do bookkeeping first.) Some preparers just use time. Others based their fee on the level of complexity. But if you are told the fee is based on the refund, thank them and keep looking. This is a contingency based fee and the preparer now has a interest in the outcome of the return. The bigger the refund the bigger the fee.”

In such a situation, as Trish puts it – “So if the preparer wants to make money, it is in his/her best interest to beef up the refund”. You can be 99 and 44/100% sure that the preparer will add phantom deductions to increase the refund to, in turn, increase his/her fee!

Back when I was accepting new clients and I was asked what was my fee I would say something like, “anywhere from $25 to $200”. I was not trying to be cute or evasive. It is literally impossible for a competent and ethical tax preparer to give an exact quote on the cost of preparing a tax return without actually preparing the return. A client might tell the preparer, “Oh, it’s a simple return” - but it rarely is.

But what I would never, ever say was, “20% of your refund”.

* Chad Bordeaux of BEANCOUNTER RAMBLINGS has ended his 5-part series on ROTH IRA conversions with “Planning Ideas – What is the Pro-Rata Rule?

A great and informative series! Have you read all the entries?

* The Tax Foundation’s TAX POLICY BLOG lays it all out –

New Jersey has the least-business-friendly tax climate of all 50 states. The Garden State has the highest median property taxes in the nation, the second-highest state-level sales tax rate, and the third-highest top individual income tax rate.

All of these factored in to New Jersey's recent last-place ranking in the Tax Foundation's ‘2010 State Business Tax Climate Index’, which measure's states' tax-competitiveness

Why would anyone who is not a direct beneficiary of NJ’s statewide political corruption vote to re-elect Jon Corzine or any incumbent politician. Get a GRIP (Get Rid of Incumbent Politicians) this coming November!

* The IRS tells us that a “New Form Aids Processing of Mortgage Applications, Makes Ordering Tax Transcripts Simpler”.

Taxpayers can use Form 4506T-EZ, Short Form Request for Individual Tax Return Transcript, to order a Form 1040 series tax return transcript free of charge.”

* G Christopher Wright reports at THE TAX LAW REPORT blog about a Tax Court case (McCormick v. Commissioner, T.C. Memo. 2009-239) in which “Settlement of Disputed Debt Does Not Result in Cancellation of Debt Income

* Certified Tax Resolution Specialist Michael Rozbruch lists the “Top 7 Tax Resolution Lessons Learned from the Worst Cases of Celebrity Tax Evasion” over at the TAX RESOLUTION UNIVERSITY.

A great list and some great lessons. Michael goes back as far as Abbott and Costello’s tax problems from the mid 1950s.

* Kay Bell of DON’T MESS WITH TAXES brings us up-to-date on the First Time Homebuyer Credit controversy with “$10 Billion Paid Out in Home Buyer Claims, But How Many Were Bogus?”, “First-Time Home Buyer Credit Testimony”, and “H.R. 3901 Aims to Halt Home Buyer Fraud”.

Kelly Phillips Erb also covers the topic at TAX GIRL with “Cheater, Cheater, Pumpkin Eater: Home Buyer Credit Fraud Rampant” and “Hey Kid, Wanna Buy a House?

I will resist the temptation to say, “I told you so!”.

* Here’s an interesting item from the Wall Street Journal – “Cash for Clubbers: Congress's fabulous golf cart stimulus”.

Thanks to the federal tax credit to buy high-mileage cars that was part of President Obama's stimulus plan, Uncle Sam is now paying Americans to buy that great necessity of modern life, the golf cart.”

* Prof Jim Maule discusses the recent TIGTA report on the large number of errors made by IRS-trained volunteers in “Getting Ready for More Tax Errors of the Ominous Kind”.

As usual Jim’s post includes some wise observations -

Part of the problem is that even some employees of revenue agencies, including the IRS, don’t understand tax law or understand it insufficiently to get it right enough of the time.

The solution, of course, is a tax system that does not provide as many traps for the unwary, opportunities for error, and unwarranted complexity as does the current arrangement. Until that happens, stories of mistake-filled returns, erroneous refunds, audit blunders, and other failures will multiply, and the resilience of a tax system built on self-compliance, which requires taxpayer confidence in the system’s fairness and reliability, will weaken to the point of collapse

* It is a rare occasion indeed when I agree with the AICPA. However we see eye-to-eye on the issue discussed in the JOURNAL OF ACCOUNTANCY article “Coalition Urges Congress to Ban Tax Strategy Patents”.

I have often spoken out against the patenting or copyrighting of tax strategies here at TWTP.


Friday, October 23, 2009


In Part I of this post I occasionally used the phrase “unless I have direct personal knowledge to the contrary”. What do I mean by this?

Let us say that a client has filled out one of my worksheets stating that the rent collected for the year on the upstairs apartment of a two-family house is $9,600 – or $800 per month. But, when talking to the client he mentions to me that the rent he gets from the tenant is actually $1,050 per month. I now have “direct personal knowledge to the contrary”.

Or perhaps I have a client who does occasional carpentry on the side and gives me a sheet of paper listing his income and expenses that shows $3,500 as total gross receipts for the year. However, in July of the tax year in question I had paid the client $4,000 to install new kitchen cabinets in my home. I have “direct personal knowledge to the contrary” that the client’s gross income for the year was at least $4,000. (To be fair, the client may have split the work with another part-time carpenter, giving him $1,000 for his labor, and is claiming on his worksheet only his share of the fee and not deducting out the $1,000 paid to the other carpenter in his list of itemized expenses – but I must ask the client to find this out.)

And a third possibility – I have a client who each year only reports, to me and to the IRS and NJDOT, income from his W-2 job and some interest and dividends from 1099s. I have another client who had work done on his rental property during the year. Included in the cancelled checks for the repairs that this client shows me is one to the first client for $600 for painting the apartment. The second client tells me that the first client is a self-employed painter on the week-ends. I now have “direct personal knowledge to the contrary” that the client has additional, unreported, taxable income.

In each of these cases I must tell the client that I have “direct personal knowledge to the contrary” and that if he wants me to prepare his tax return I must report the correct amount of income.

Now if one client just happens in passing to mention that another client does not report all his income, but the “complaining” client has no first-hand knowledge of the truthfulness of this statement and is just making a guess based on what he thinks may be true, this is pure hearsay and definitely not “direct personal knowledge to the contrary”. In my opinion I am not even obligated to ask the other client about this contention.

While the Internal Revenue Service considers the tax preparation community as a “stakeholder”, as a tax preparer I am not in any way a representative or agent of the Internal Revenue Service or any state tax authority.

My only obligations and responsibilities to the IRS or a state are, as stated in Part I, “to report all taxable income and claim all allowable deductions and credits, as identified in the Internal Revenue Code, of which I have knowledge, in a manner that is prescribed or allowed by the Tax Code or IRS and state rules and regulations” – basically to prepare an accurate and honest return - and to comply with the standards required of all tax preparers, unenrolled and otherwise, outlined in IRS Publication 470 and IRS Circular 230.

While, as previously mentioned, I am not obligated or required to personally verify all numbers entered on the 1040 (or 1040A), I am required to do what is called “due diligence” when it comes to information provided by the client. What this means is that I must -

• evaluate information received from clients,
• apply a consistency and reasonableness standard to the information, and
• ask additional questions if the information appears incorrect, inconsistent or incomplete.

Obviously, if a client says or indicates something that does not make sense, or does not seem reasonable, I must ask questions. And if a new client comes in who drives the latest model Mercedes Benz, is wearing a $500 suit and a $5,000 Rolex, and lives in a $1 Million + house, but claims only $50,000 in income for the year, I must dig deeper.

But if what a client tells me, or indicates on a worksheet, appears to me to be reasonable considering the individual facts and circumstances than I do not need to go any further.

When it comes to the Earned Income Credit I am required to be a bit more “due” in my “diligence”. As a side comment, I do not think it is fair for the IRS to require tax preparers to determine if an individual is eligible for federal welfare (which, after all, is what the EIC is).

I must sign all returns that I have prepared for a fee.

I cannot endorse or negotiate a client’s refund check.

I must not charge an “unconscionable” fee (are CPAs and Henry and Richard aware of this?).

If I take a position on a tax return that is excessively controversial, one that may be contrary to regulation, I must attach to the return a schedule or statement disclosing the controversial position taken.

As a “financial professional” it appears I am also required to disclose to clients my “Privacy Policy”, which is -

I collect nonpublic personal information about you from (1) information I receive from you on work-sheets and other documents that I use in preparing your tax return, and (2) information about your transactions with me or with others.

I do not disclose any nonpublic personal information about you to anyone, except as permitted by law.

If you decide to close your account or become an inactive client, I will adhere to the privacy policy as described in this notice.

I am the only person with access to your personal and account information. I maintain physical, electronic and procedural safeguards that comply with federal standards to guard your information

Finally, as a member of the National Association of Tax Professionals I am obligated to comply with the Association’s “Standards of Professional Conduct”. The purpose of these standards is to establish a threefold responsibility of members –

Our first responsibility is to our clients. Members should make every effort to protect the interests of the client and advise the client when the client is taking the wrong course of conduct. The client is responsible for any decisions made when the tax return is prepared. When the client signs the tax return, it has the force of an affidavit.

The second responsibility is to the member himself. Members should conduct their practice so that it will not jeopardize their professional reputation or self-respect. The member should not be unreasonable in requiring proof of statements made by the taxpayer.

The third responsibility is to the government. In this respect, a member should always bear in mind the member is governed by the law, regulations, and decisions that make up their field of tax practice

The document goes on to list specific examples of standards of ethical conduct, similar to those imposed by the Internal Revenue Service.

Before I end - What about the client?

A 1040 client also has obligations, responsibilities and requirements regarding the return. In the letter that I give to clients with their finished returns I state –

There returns are subject to review and examination by the IRS and appropriate state tax agencies. We accept responsibility for the clerical and mathematical accuracy of all returns I have prepared. However, the burden of proving the facts reported on your tax return rests with you. You are responsible for keeping all of the necessary documentation of the income and deductions claimed on these returns for at least three (3) years.”

This letter also says –

Please examine these returns carefully to be sure all items of income and deductions have been accounted for properly. You are responsible for all the information reported on the returns. If you find anything that is not in order, or that you do not understand, contact us immediately. It is extremely important that you verify the accuracy of all Social Security numbers on the returns before mailing.”

As the NATP Standards of Professional Conduct quoted above says – “The client is responsible for any decisions made when the tax return is prepared. When the client signs the tax return, it has the force of an affidavit.”

Bottom line - you should not take the finished returns from me, or your tax professional, and just sign and mail without actually looking at them. You should carefully review all the forms and schedules that make up the returns before you sign and send.


PS – Now your comments are welcome and solicited!

Thursday, October 22, 2009


In today’s, and tomorrow’s, post I would like to discuss in depth what I, as a veteran of 38 tax seasons, believe to be my legal and ethical obligations, responsibilities and requirements, to my practice, to my clients, and to the IRS and corresponding state authorities, as the paid preparer of federal and state income tax returns.

When a client “engages” me to prepare his/her individual income tax returns he/she is basically asking me to assist him/her in preparing a government report.

Clients provide the information needed to properly and completely prepare this government report in a variety of methods.

Some clients give their preparer everything – information returns, bank and investment statements, bills, receipts, etc – and the preparer must wade through the piles of “stuff” and determine the specific information to report. The typical stereotype of the “shoe box”, with numbers and notes written on cocktail napkins, like Oscar in the “Odd Couple” tv series.

Other clients simply fill out a multi-page tax questionnaire provided by the preparer, and provide no, or minimal, actual documentation.

I do not use a pro-forma tax questionnaire, and never have. I request specific information returns and documentation and provide a variety of generic and specific worksheets for the client to fill out to provide information on medical expenses, charitable contributions, employee business expenses, self-employment income and expenses, rental income and expenses, etc. Most times a client will fill out my worksheet, but sometimes a client will give me a worksheet of his/her own creation or just a sheet of paper with itemized numbers and notes.

Some “engagements” go beyond just preparing the tax returns. In the case of a Schedule C or extensive rental business or involved investments the tax preparer may also be contracted to keep the “books” of the activity during the year.

For the most part I limit my service to the actual preparation of the federal, state and, if applicable, local returns, based in information provided by the taxpayer.

In my opinion, it is my basic obligation and responsibility, to my practice, my client, and the IRS and state authorities, to report all taxable income and claim all allowable deductions and credits, as identified in the Internal Revenue Code, of which I have knowledge, in a manner that is prescribed or allowed by the Tax Code or IRS and state rules and regulations.

I must prepare an honest and accurate return, based on the information provided. I must not knowingly prepare a fraudulent return.

As a paid tax professional I sign each return that I prepare declaring, under penalty of perjury, that the return is “based on all information of which preparer has any knowledge”.

My obligation and responsibility to my client is to calculate the tax liability so that I take advantage of all deductions, credits and “loopholes” available in federal, state and local tax law so that, based on the individual facts and circumstances as presented to me, and within long-term considerations, the client pays the absolute least amount of combined federal, state and local income tax possible.

In the case of a “grey” area of the Tax Code, an item of income, deduction or credit which is open to interpretation, I believe that I am obligated to interpret the law in such a way to provide the maximum tax benefit to my client.

That being said, in situations where the applicable federal or state tax law is “unsettled” or where the application of the law to the facts at hand is ”uncertain” (i.e. open to interpretation), I am obligated to explain the possible effects of the various alternatives to my client. It is the client who must make the final decision about the position to be taken.

While I do somewhat agree that if you think the worst of people you will never be disappointed, only pleasantly surprised - when it comes to approaching the preparation of tax returns I must assume that, unless I have direct personal knowledge to the contrary, the client is telling me the truth.

I do ask my clients for specific information. In the past I have included the following notice has in various client newsletters and mailings -

In order to make sure that you pay the absolute least amount of federal and state income taxes each year I need complete and accurate information from you at tax time.

This means I need specific numbers for deductions you are claiming. ‘Claim the maximum’ or ‘Whatever I am allowed’ or ‘Same as last year’ don’t cut it. The maximum is what you actually paid – and you are allowed what you actually paid! And it is very rare that an expense or number of miles driven for an activity is exactly the same as it was the previous year (although, I will admit, not impossible). I cannot make up numbers for you– I need you to tell me ‘$1023.50’ or ‘$20.00 per week for 50 weeks’ or ‘4638 miles’!

Each year I include in my January client mailing worksheets that may apply to your individual situation. Please fill them out completely and accurately – or provide me with a detailed listing of your deductions in any other format you choose – but do provide me with specific numbers. If you do not give me the proper information and I have to email or write to you this wastes valuable time and delays the completion of your tax return.

I want to make sure you take advantage of all the deductions and credits to which you are entitled – but I can only do this if you give me complete and accurate information

But if you tell me or indicate on a worksheet that your gross income from a part-time sideline business was $3,525, or that your total medical expenses were $6,257, or that you drove 4,206 miles for business I will believe this to be true (again, unless I have direct personal knowledge to the contrary). It is not my responsibility to personally verify all the numbers or statements given to me by a client. I have no obligation, legal or ethical, to audit your return. This is up to the IRS, if they so choose. I am simply preparing the return, to the best of my ability, “based on information supplied by the client”.

I often say to clients – “I don’t need to see the bills, I just need numbers”.

(Please note that I will discuss the concept of “due diligence” in Part II.)

It is my obligation and responsibility to tell clients about the IRS standards and requirements for documenting income, deductions and credits. But that is where it ends.

I will, for example, tell a client that “You can only deduct cash contributions to a church or charity if you can provide a cancelled check, a credit card receipt, a “bank record” (such as a copy of the check on a bank statement or an identifying credit or debit card entry on a bank or credit card statement), or a written receipt from the charity to document the contribution” (and so state on my Charitable Contributions Worksheet), but I do not need to see each and every piece of documentation. I just need, and ask for on the worksheet, a total amount for the year.

Some clients do include letters or statements of acknowledgement from churches and charities with their tax “stuff”, and this is fine. One couple gives me all of their bank statements for the year (which have copies of cashed checks), their check registers, their annual statement from the church, and a pile of letters of acknowledgement for me to go through and add up, which I do for, of course, an additional charge.

I will also tell a client who uses his car for business, either as an employee or in a self-employed activity, that he/she should keep a travel diary to record the name of client, location, business purpose and number of round-trip miles driven on a daily basis. But I do not need to actually see the diary or personally add up all the individual mileage entries in the diary. Again, some clients do give me their diary, or a similar worksheet, and I do run a tape on the individual mileage entries.

And I will tell a client that only unreimbursed “out of pocket” medical expenses are deductible, less any insurance or employer plan reimbursements. But I do not need (nor do I particularly want) to see each and every medical bill and all statements from insurance companies and flexible spending accounts to verify that the expense was not reimbursed. Yet I do receive a “shoe box” full of medical bills and insurance statements (which I really do not want) and will do my best to determine “out of pocket”, and will charge my hourly rate for taking the extra time to do so.

There is some documentation that I do specifically ask to see when preparing a tax return. I want each client to give me –

• W-2 forms (all copies)
All 1099s, 1098s (including C, T, etc), and K-1s from all sources
All year-end statements from brokerage and mutual fund accounts, plus any booklets or other literature provided by brokerage firms and mutual fund houses
• All AVERAGE COST STATEMENTS received from a mutual fund on the sale of fund shares

I also ask for specific documentation in certain circumstances, such as the Closing/Settlement Statement if you purchased, sold or refinanced real estate.

My website – – includes a “What I Need” page.

But as for most itemized deductions (other than real estate taxes and mortgage interest) and rental income and expenses, self-employment income and expenses, and child-care expenses all I request is a “detailed listing”.

And even though I may ask my clients for specific items of documentation (as discussed above) I am not obligated to do so in order to verify information provided by the client. I do so to make sure I, or the client, do not miss anything, especially something that has been reported to the IRS by a third party.


P.S. - While I do want to “hear” comments on this topic, especially from fellow tax professionals, I ask that you please wait until tomorrow’s (Friday’s) post has been published and I have finished having my say before you submit them. Thanks!

Wednesday, October 21, 2009


* Kay Bell starts the BUZZ ball rolling with her post “Geithner Talks (a little) About Taxes” at DON’T MESS WITH TAXES.

Speaking at the Buttonwood financial conference held at Pace University in New York City last week, Treasury Secretary Timothy “Turbo Tax Screwed Up My Taxes” Geithner told those present that “. . . the Obama Administration must be careful not to withdraw economic stimulus programs too quickly. However, Geithner insisted that the White House isn't yet contemplating a second economic stimulus program.”

Kay goes on to report -

Asked about the prospects for tax reform, Sheppard reports that Geithner dodged the question and indicated that it would be far down the line. Economic growth and public confidence about the economy's future take precedence, he said, followed by deficit reduction, which would require tough political choices.

With those items before it on the policy to-do list, it's probably safe to say that Obama's stab at tax reform is going to suffer the same sad fate as did Dubya's tax revamp effort

So I guess I rushed to get my comments on tax reform to the President’s panel by the October 15th deadline for nothing.

* Trish McIntire is up to Part V in her “Buyer Education” series at OUR TAXING TIMES. This one tells you “Your W-2's Can't Be Held Hostage...”.

She gives some good advice at the end -

So, my advice is to take a minute and make a copy of whatever you give to the preparer. If there is a problem and you choose to try another preparer, ask for your papers back. If the preparer refuses, you have a backup.”

I tell my clients to make and hold on to a copy of all their W-2s before giving me the tax “stuff”. This is because they may be asked by a variety of sources for a copy of their W-2. Despite my instruction, included in my January client letter, I always get a couple of calls or emails during the season asking me to fax or mail to them, or to someone else, a copy of their W-2(s).

* Professor Jim Maule provides an as usual scholarly post on “Why the Nation Needs Tax Education” at MAULED AGAIN.

Jim properly observes -

The fact is that very few Americans understand the federal income tax system. The premise is that only by understanding the tax system can Americans not only pay no more and no less than what they legally owe in taxes but also comprehend the sorry state of national politics and economics that threaten the well-being of the nation and its citizens.”

Who is to blame!

Thanks to the Congress, which ultimately is responsible for the incomprehensibility of the federal tax law, and state legislatures, which have increasingly muddled state tax law.”

As a tax professional (emphasis on “professional”) I am not afraid of an educated taxpayer. I much prefer a client who has some basic knowledge and understanding of his taxes to the “great unwashed masses” of the totally clueless. As I have often said, here and elsewhere, the more informed you are about your tax situation the better prepared you will be when you give me, or your tax professional, your “stuff” at tax time. And, therefore, the easier my, and his/her, job.

It ain’t easy. Albert Einstein said, “The hardest thing in the world to understand is the income tax”! You can start by becoming a regular visitor to THE WANDERING TAX PRO and checking out the BUZZ twice a week (Wed and Sat).

* New Jersey finally tops a list (not the list of the most expensive state in which to live – although it probably would if there were such a list). TAX PROF Paul Caron reports that New Jersey is #1 on the list of “Median Family Income”, according to the US Census Bureau.

* My home page reports that, “Feds To Issue New Medical Marijuana Policy”.

According to the item – “Federal drug agents won't pursue pot-smoking patients or their sanctioned suppliers in states that allow medical marijuana, under new legal guidelines to be issued Monday by the Obama administration”.

Fourteen states currently allow some use of marijuana for medical purposes: Alaska, California, Colorado, Hawaii, Maine, Maryland, Michigan, Montana, Nevada, New Mexico, Oregon, Rhode Island, Vermont and Washington.

However residents of these 14 states should not expect to be able to deduct the cost of their medical marijuana as a medical deduction on their Form 1040. When it comes to such a deduction the IRS still “just says no”.

* Want to find out how much you need to put away each month to be able to retire with $1 Million? Click here.

* Nothing escapes Joe Kristan of the ROTH AND COMPANY TAX UPDATE BLOG. Thanks and a tip o’ the hat for unearthing “Don't Tell Anybody, But...

“. . . ...the Federal Circuit Court of Appeals on October 9 apparently upheld the taxpayer victory in the Fisher demutualization case, without comment.”

What is he talking about? See my post “The Feeling is Demutual”.

* And check out Joe’s post “Passive Losses Go to the Dogs” for its great moral –

The Moral? If you have a business on the side, keep an appointment calendar.”

* Jean Murray’s post “6 Tax Mistakes Small Businesses Make” at JEAN’S BUSINESS LAW / TAXES: U.S. BLOG begins and ends with great examples -

1. Auto/Travel Expenses. Failing to keep good records for travel and auto usage. This includes failure to differentiate business and personal use of your car, especially if you have only one. The IRS scrutinizes auto expenses closely, and if you have only one car and you are claiming lots of travel and auto expenses, they will probably want to see your records.

6. Keep Business and Personal Separate. I just talked about this one, but I wanted to mention it again. If you fail to keep your business and personal financial data separate, you risk having the IRS disqualify your business as a separate entity, and having all your business expenses wiped out as legitimate business deductions. Set up a separate business bank account and keep separate records

* Roni Deutch tells us what she expects to be in the “The NEXT Economic Stimulus Package” at her TAX LADY BLOG.

She smartly points out that –

One of the administration’s biggest priorities is to keep any new legislation from being labeled as another stimulus package. Why? Because it implies that the first package was unsuccessful, and taxpayers are not likely to support a second unsuccessful program.”

* The Wall Street Journal reports that “Home-Buyer Credit Is Focus of Inquiry”.

According to the article –

The Internal Revenue Service is examining more than 100,000 suspicious claims for the first-time home-buyer tax break, another sign of potential trouble for the soon-to-expire program.”

What is 100,000 times $8,000? I have always said it was too easy to request and get this credit – no documentation or even a signature required. Plus I have been warning against refundable credits for years.

So, do you think it is a good idea to extend this refundable credit for another year?


Tuesday, October 20, 2009


Before we “close the book” on “who is a professional” let us look at what some other individuals have said regarding the definition of a professional in general, and tax professional in particular.

FYI, this post is a continuation to my earlier post “I Am A Professional!”, which was my response to a very offensive and totally illogical post by another tax blogger, which I took to be a personal attack on me.

First we hear from non tax professionals.

A reader of the offending blog named Dylan said of the post (the highlights are mine) –

I think your argument is a real stretch. Being a licensed attorney or CPA may extend you certain privileges and rights relating to matters of taxation that non-attorneys or non-CPAs don’t have, but it is not a license to prepare taxes.

Based on the definitions you cite, a tax preparer that conforms to the technical or ethical standards of tax preparation is a professional, especially (but a requirement) if they have advanced education.

You’re entitled to your opinion about who is a professional and who is not. But as a professional attorney, do you really think you embody higher learning and objectivity by labeling your personal belief that is not founded on proof or certainty as fact?

And for the record, I am not a tax preparer, attorney or CPA

Mary O’Keeffe writes the great tax blog BED BUFFALOES IN YOUR TAX CODE. She is a college professor and not a practicing paid tax professional. However she is a seasoned tax preparer, via her involvement with the IRS’ VITA program, and teaches tax topics. Here is some of what Mary had to say (again the highlight is mine) -

Here is the complete unabridged definition of profession from Merriam-Webster’s Third New International Dictionary:

‘Main Entry: pro•fes•sion

Etymology: Middle English professioun, from Anglo-French profession, from Late Latin & Latin; Late Latin profession-, professio, from Latin, public declaration, from profitēri
Date: 13th century

1 : the act of taking the vows of a religious community
2 : an act of openly declaring or publicly claiming a belief, faith, or opinion : protestation
3 : an avowed religious faith
4 a : a calling requiring specialized knowledge and often long and intensive academic preparation
b : a principal calling, vocation, or employment
c : the whole body of persons engaged in a calling’

There is absolutely nothing in the definition which requires validation by an independent, recognized regulatory regime. Some professions have such validation; others do not.

I consider myself to be in the economics profession. I have a PhD in economics, am paid for using my professional expertise in economics, and belong to professional societies in economics. I believe my professional credentials would stand up to scrutiny in a court proceeding, even though I am not subject to any “independent, regulatory regime.” It is also worthy of note that I have taught aspiring lawyers and accountants courses that counted toward obtaining THEIR professional credentials despite not having any government license myself.

Many professions should be regulated, as should be many amateurs, as I have said, but a person who happens to work in an occupation which is not regulated at a particular point in time is not, ispo facto, a non-professional.

The same is also true in reverse. I might, just for the heck of it, decide to sit for the Enrolled Agent exam some day, but passing it won’t make me a professional tax preparer, because I have no plans to charge anyone for my services

And now to the response of tax professionals.

Colleague and friend Bruce MacFarland, aka the “tax guy”, who is also an “unenrolled” tax preparer (although once upon a time a CPA), came to my defense in an extensive post on the subject titled “A Little Professionalism, If You Please”. In it he quotes from IRS Publication 470: Limited Practice Without Enrollment

Sec. 7. Ethics and Conduct .01 An unenrolled preparer shall act in such manner as not to commit any act of disreputable conduct. Disreputable conduct includes, but is not limited to, the items contained in section 10.51 of Circular 230.”

Bruce also says of the offending blogger’s twisted logic – “By what he is saying, Paul McCartney is not a professional. Disagree? Then please point out for us what impartial third party regulatory body has determined his core competence in music.”

In a supportive email to me on the subject CPA Stacie Clifford Kitts’, author of the blog STACIE’S MORE TAX TIPS, stated the obvious. “His basic premise that you must be regulated to be a member of a profession is silly.”

And another fellow tax blogger simply asked me about the offender in a “tweet” – “What bug crawled up (his) ass?

Sincere thanks to the fellow tax professionals, and the non-tax professionals, who came to my defense on this issue.

A CPA is not a tax professional by virtue of having passed the CPA exam and being granted a state license. A CPA is licensed to certify audits of financial statements and nothing else. A CPA is not a licensed tax preparer. A CPA is an accounting professional.

And let me say that a practicing Accountant who is not “certified” is no less of a professional than a CPA.

A lawyer is not a tax professional by virtue of having passed the Bar and being granted a state license to practice law. A lawyer is licensed to represent clients in legal matters before the various Courts and agencies of the State(s) whose bar he/she has passed. A lawyer is not a licensed tax preparer. A lawyer is a legal professional.

As I have said many times before here and elsewhere – a particular CPA or a lawyer may indeed be a tax professional, but it has absolutely positively nothing to do with his/her “initials” or designation!

Using the offending blogger’s twisted logic the only individuals who can call themselves a “tax professional” are Enrolled Agents – because they are the only individuals who are licensed and regulated by a government agency to prepare income tax returns. EAs who prepare tax returns for a living are truly tax professionals, but they are not the only tax professionals.

If the Congress and IRS decide that all tax preparers must register and be licensed in order to be able to prepare tax returns for a fee I will obviously comply with the regulations. As the offender has pointed out I support the registration and licensing of tax professionals. But getting a license from the IRS does not make me a tax professional. I am already a tax professional, and have been so for more than 30 years. The only thing that getting a government license makes me is licensed – a licensed tax professional.

What makes me a tax professional is my training, education and experience and the fact that I make my living preparing tax returns. Who has determined that I am a tax professional? The hundreds of clients who come back to me year after year after year, some for 30+ years, to pay me to prepare their returns.

The offender told Bruce MacFarland that his post was not a personal attack on me, but that “I thought it was appropriate given the recent proposals by the IRS to regulate unlicensed tax preparers

Poppycock. There was no substantive purpose for the post as written – except to tell his readers that I, and those like me, am not a professional. And it is clear by the description in his initial offending post that he was talking about me personally. And his subsequent post about my response certainly was a personal attack.

As I stated to Bruce in an email -

The topic of who is a professional as he has written it has absolutely nothing to do with the regulation of tax preparers. Tax preparers should be licensed so that existing unenrolled ‘professionals’ can be recognized for being ‘professionals’. A license does not make a person a professional. Earning a living in a profession or trade makes one a professional.”

I am a professional!

“Nuff said. End of story.


PS – Your comments are welcome and solicited.


Pardon my politicking, but I just had to comment.

I heard on the news this morning that BO and Bill Clinton will be coming to New Jersey during the next two days to campaign for Governor Jon “the Biggest Disappointment” Corzine’s re-election.

I understand that Democrats must support Democrats. But even if the State Democratic Party is corrupt and greedy? And even if the candidate has done absolutely nothing of real value in addressing the problems of the State during his term in office, despite laudable campaign promises 4 years ago?

I suppose that Barrack and Bill would be coming to NJ even if Homer Simpson was the Democratic candidate for Governor. Hey, Homer would probably make a better Governor than Corzine!


We missed it! Did you know the federal income tax celebrated its 96th birthday on October 3rd?
In February of 1913 the 16th Amendment was ratified by the required three-fourths of the states. The amendment gave Congress the power to “lay and collect tax on incomes, from whatever sources derived, without apportionment among the several states, and without regard to any census or enumeration.” On October 3, 1913, Congress passed the Revenue Act of 1913, which created the first permanent federal income tax.

Congress had made two previous attempts at instituting a federal income tax. The first, in 1861, was an emergency measure to fund the Civil War and was repealed in 1872. In 1894, in response to com-plaints that excessive reliance on tariffs as a source of revenue caused the price of imported goods to rise, Congress again passed an income tax law, which the Supreme Court ruled unconstitutional in 1895.

In celebration of this special occasion, here are some facts about the very first Form 1040:

• The tax applied to salaries and wages, interest, dividends, rents, royalties, pensions and annuities, in-come from estates, trusts, sole proprietorships and partnerships, and gains from the sale of most types of property.

• The salaries and wages of state and local government employees were exempt from income tax.

• Interest from federal, as well as state and local, government bonds were exempt from income tax.

• Deductions were allowed for “personal” interest, federal excise taxes, taxes paid to state and local governments, casualty and theft losses, bad debts, business expenses, and depreciation of property used in business.

• There was an exemption of $3,000.00 for single persons and $4,000.00 for married couples.

• A “normal” tax of 1% was applied to the first $20,000.00 of taxable income. Dividends were exempt from this “normal” tax. An additional or “super” tax of from 1% to 6% was applied to income, including dividends, in excess of $20,000.00.

• The return was due “on or before the first day of March” (Oi vey! Thank God that was changed!).

• There was only one page of instructions!

• In the first year of the income tax only 1 out of every 271 American citizens were taxed and $28 Million in revenue was raised.

Over the years the federal income tax has evolved into the mucking fess that it is today. According to former Treasury Secretary Paul O’Neill, “Our tax code is so complicated; we’ve made it nearly impossible for even the Internal Revenue Service to understand.” Here are some of the landmarks of this evolution.

• A personal exemption allowance for dependents and a deduction for charitable contributions were added in 1917.

• Capital gains were singled out for preferential treatment in 1922, although profits on the sale of certain types of property received special tax treatment as early as 1918.

• A deduction for medical expenses was introduced in 1942.

• The Standard Deduction was added in 1944 as an alternative to requiring taxpayers to itemize qualified expenses.

• An Income Averaging method of tax computation was initiated in 1964, to be taken away by the Tax Reform Act of 1986.

• A “minimum” tax on specified “tax preference” items first appeared in 1970, and was replaced by the dreaded Alternative Minimum Tax (AMT) in 1979.

• An Individual Retirement Account for taxpayers not covered by an employer pension plan was introduced in 1974.

• The refundable Earned Income Credit for low wage earners with dependent children was created in 1975.

• Unemployment compensation was made partially taxable in 1979, and was eventually made fully taxable. I remember saying at the time, “The next thing you know they will be taxing Social Security”.

• Social Security and Railroad Retirement benefits became partially taxable in 1984.

By the way, if you who think taxes are too high today, from the end of World War II through the early 1960s the top tax rate was more than 90%!


Monday, October 19, 2009


* A recent taxpayer-friendly Chief Counsel Advice memo (CCA 200940030) tells us that the IRS Chief Counsel has determined that in the case of a taxpayer’s mortgage loan of more than $1,000,000, which was used to buy a personal residence, interest on $1,100,000 was deductible; the deduction was not limited to interest on the $1 Million “acquisition debt” maximum. The additional $100,000 of borrowings qualified as equity indebtedness. This is contrary to the decisions of court cases from 1997 and 2000.

* Great news for my clients who frequent Atlantic City. I mentioned this item briefly in a previous BUZZ posting, but it bears repeating and expanding. The Tax Court, in TC Memo 2009-226 (Ann L Laplante v Commissioner of Internal Revenue) has agreed that a gambler’s aggregate winnings for the day per casino are includible in income rather than individual winnings on a slot machine.

This is very important because “gross” gambling winnings are reported in full on Page 1 of the 1040, but losses are deductible, to the extent of winnings, only if you itemize. Gross winnings increase your AGI, and can reduce a multitude of tax benefits, increase taxable Social Security or Railroad Retirement, and make you victim of the dreaded AMT.

Russ Fox of TAXABLE TALK discusses this case in detail in “An Interesting Gambling Case”.

As Russ points out, Ms Laplante’s savvy tax professional, who happened to be an attorney, “realized that much of her winnings were illusory; that her true winnings were not the total of her W-2Gs but she walked out of the casino with—the net win or loss for the trip. The attorney felt that $4,000 was the correct number to report on the return” instead of the $56,200 she received in W-2Gs. So she entered $4,000 on Line 21 of her Form 1040 instead of $56,200.

The Court actually agreed with the tax pro’s reasoning. Russ quotes from the Court’s decision –

Respondent nonetheless agrees with petitioner’s theory of recognizing slot machine play on the basis of net wins or losses per visit to the casino. Specifically, respondent states the following:

[T]he better view is that a casual gambler playing a slot machine, such as the petitioner, recognizes a wagering gain or loss at the time she redeems her tokens. The fluctuating wins and losses left in play are not accessions to wealth until the taxpayer redeems her tokens and can definitively calculate the amount above or below basis (the wager) realized. See Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955)

However Russ does state the following caveat – “I do need to point out that the Tax Court did not pass judgment on this issue, so it is possible they would disagree at some future date”.

What is important for gamblers who wish to use this method to report gambling winnings to remember is the following quote from the decision –

No valid reason exists for taxpayers engaged in wagering transactions not to maintain a contemporaneous gambling diary or gambling log”.

Just as a person who uses his/her car for business must keep a contemporaneous record of business mileage, a gambler must keep a contemporaneous record of daily activity. A simple pocket notebook will do. You would indicate the date, the name of the casino, and the net activity from that casino for the day. For example:

November 19, 2009 – Bally’s Wild West - $115.00
– Ceasar’s Palace – ($25.00)

November 20, 2009 – Bally’s Wild West – ($50.00)

You may have won $1,000 in one slot pull while at Bally’s on November 19th, but you put $885.00 back into the machines before leaving the casino. So instead of reporting $1,000 you would report only $115.00. The additional $75.00 in losses could be deducted as a Miscellaneous itemized deduction not subject to the 2% of AGI exclusion.

It is also a good idea to join the various “clubs” of the casino’s you frequent so that you can get a membership card to use to track daily gains and losses as additional documentation. But using the card should be in addition to and not instead of keeping a daily gambling diary.

* Did you know that beginning with 2009 tax returns filed in 2010, you will be able to check a box on your return to use all or part of any refund to purchase Series I U.S. savings bond, available in denominations of $50, $100, $200, $500, and $1,000, which will be mailed directly to you? You do now!

* This is not a tax item – but it is certainly worth discussing –

By pure luck I happened upon a great item on this past Sunday’s CBS Sunday Morning program. It discussed the issues brought up in the book “Life Without Lawyers: Liberating Americans from Too Much Law” by lawyer Philip K. Howard.

Here is a quote from the book, taken from a review from the New York Times –

“‘Sometimes I wonder how it came to this,’ a teacher in Wyoming told me, ‘where teachers no longer have authority to run the classroom and parents are afraid to go on field trips for fear of being sued’.. Thomas Jefferson might have the same question. How did the land of freedom become a legal minefield? Americans tiptoe through law all day long, avoiding any acts that might offend someone or erupt into a legal claim. Legal fears constantly divert us from doing what we think is right.”

The press release for the book further identifies the absurdities of current life brought about by lawyers –

Americans are losing the freedom to make sense of daily choices – teachers can’t maintain order in the classroom, managers are trained to avoid candor, schools ban the game of tag, and companies plaster inane warnings on everything: ‘Remove Baby Before Folding Stroller’

With apologies to Kelly Erb, Jim Maule, Paul Caron, Tom Cooke and Jim Grisi, I have always felt that the average ambulance-chasing lawyer (not tax or labor lawyers) was the scum of the earth, and that 500 lawyers on the bottom of the ocean was a good start.

I obviously agree that there are certainly times when you do need a lawyer, and that there have been lawyers who have done much good, it is my firm belief that in the grand scheme of things, similar to my opinion on organized religion, lawyers have historically done more bad than good.

The book’s press release is absolutely correct when it says –

Today we are flooded with rules and legal threats that prevent us from taking responsibility and using our common sense.”

Of course lawyers are not totally to blame. They started the mess by filing ridiculous lawsuits and are exploiting the situation – but it is the juries that have perpetuated the folly. Remember the jury that awarded the cafone who spilt hot coffee from a fast food chain on her (?) lap millions of dollars. What complete idiots!

I have been on a jury panel twice over the years. One occasion involved a civil suit. An elderly women, as I recall at least in her 70s, was suing a non-profit hospital because she fell in the hall when visiting a patient. It seems something had spilled the floor and was not immediately cleaned up, although all normal procedures for hospital maintenance were properly in place. The bottom line of the plaintiff’s case, if memory serves me, was that as a result of the accident the woman’s legs hurt when she was on her knees scrubbing the floor at home.

Luckily, for the plaintiff that is, I was chosen as the “alternate juror” and was not involved in the final deliberations and decision. My fellow jurors ended up awarding the woman $75,000 in damages for her “pain and suffering”.

Gott In Himmel! I would expect that the legs of any 70-80 year old would hurt after scrubbing the floor on their knees.

I plan on ordering Howard’s book. I suggest you do so as well.

* Just a reminder - if you traded in a junk vehicle under the Cash for Clunkers program you do not have to pay tax on the credit you received. As a tax preparer I do not even need to know about it, unless you used your old or new car for business. And even in such a situation you won’t pay tax on the credit.

* Before I close I want to pass along an email I got from a new website –

The basic idea behind the site is that you ask questions and then receive answers from other tax professionals who might know. It's entirely peer driven. There is no single "authority" who has all of the answers. Everyone pools their knowledge into answering questions. We feel that the design we've put together and the way we've organized the information (in many cases) can much more straightforward than browsing forums or wading through database sites to get an answer.”

I have not had a chance to check it out – but I will once I “come up for air”.