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”.



Hani Sarji said...

Your blog is very interesting. Thanks for mentioning Future of the Federal Estate Tax. I hope it will be useful to you and your readers. Have a Happy Halloween!

Trish said...

Actually, I am seriously considering dropping RALs this year and that is the reason for the post. I'll make the decision next week after I get back from update school. The main reason for keeping them this long is the ablity for clients to have their prep fees withheld from their refund (the RAC). But it looks like I'll have a good, less costly alternative. We'll see soon.
The other reason is I have a some good hard working clients who have come to rely too much on their refund and no matter how hard I suggest other alternatives, they want the RAL. If I don't offer them , they will be forced to HRB or another chain which will charge them twice in fees as I do. But you have to cut the apron strings sometime. Will post when the decision is made.

Anonymous said...

Be careful commenting on bank profits on RALs. According to this article, SBBT lost $81 million on the loans last year, and $41 million the year previous. The APR charged by the four leading banks this year is between 21% and 35%, with the average being 24.35%. Thats not more than a credit card would cost them.


Monica said...

I agree that the IRS needs a free way for you to e-file if they're going to make it mandatory. Hopefully they will take this reasonable approach! (Do you hear the skepticism in my voice?)