For
another year the lyrics “piddle, twiddle,
and resolve – not one damn thing do we solve” from the Broadway musical
1776 served as the perfect description of the current idiot-filled Congress.
The
2014 tax filing season (for filing 2013 returns) once again got off to a late
start – also once again caused by the actions of the idiots in Congress. This time the delay was a result of the
October 1 – 16, 2013 government shutdown.
The IRS needed “time to program
and test tax processing systems following the 16-day federal government closure”. The Service announced it “would start accepting and processing 2013
individual tax returns no earlier than Jan. 28 and no later than Feb. 4”.
And,
once again, the delay did not affect me one bit. For the past 40+ years the tax filing season
has always started for me on February 1st.
And, as you should know by now, I prepare all my federal returns
manually, so delays in processing electronically-filed returns don’t mean
anything to me.
There
was not much new that affected the 2013 Form 1040. Most of the few new wrinkles concerned
taxpayers who are considered to be “wealthy”.
These included the higher capital gains and top tax rate, the return of
PEP and PEASE (at much higher levels), and the new Obamacare surtaxes – the
additional .009 Medicare surcharge and the 3.8% tax on net investment income.
The
bulk of my clients can be classified as “average middle class taxpayers”. However I did have 6 clients who were hit by
one or more of the new punishments for ambition, success, and
entrepreneurship. While the cost was not
what I would consider substantial – it did add over $2,000 to the tax bill of
some of these clients.
Generally
I found overall 1099-B reporting by brokerage houses continued to be much more consistent
and easier to follow, making things a bit easier.
As
usual, I ended the tax season with too many GD extensions.
For
the third time during a tax filing season in the 21st century the
NJWebFile generated payment voucher code apparently identified the year for
which the payment was being made as the prior year and not the current
year. Although the voucher itself
clearly said “2013 Payment Voucher” the payment was applied to 2012 and not
2013. As a result, taxpayers who made a
full and timely payment of the balance due on their NJWebFile submitted 2013
NJ-1040 erroneously received underpayment notices for the previously paid
balance due on their 2013 return, plus interest, in the fall.
Applying
the 2013 payment to 2012 would create an overpayment on the taxpayer’s 2012 tax
account. If there was an overpayment on
a federal return tax year account the Internal Revenue Service would promptly
send the taxpayer a notice identifying the overpayment and asking for an
explanation of the payment or if the taxpayer wants the amount refunded. One would think that the NJ Division of
Taxation would do the same thing. It
certainly has a fiduciary responsibility to do so. But, of course, the NJDOT remains silent and
gladly accepts the overpayment unquestioned.
The
last time this happened I was able to get the NJDOT to issue an actual letter
of apology for the FU – a true rarity.
This time around there was no apology, or even an acknowledgement that
an error occurred. The response simply
stated that based on the correspondence received (from me) there was no
additional amount due.
On
February 11th the US Court of Appeals put the final nail in the
coffin of the IRS mandatory RTRP regulation regime. In a unanimous ruling, a three-judge
appellate panel upheld the lower court's January 2013 decision that the Internal
Revenue Service does not have the power to impose test-taking and continuing
education requirements on hundreds of thousands of “unenrolled” tax-return preparers.
"We agree with the District Court that the
IRS's statutory authority ... cannot be stretched so broadly as to encompass
authority to regulate tax-return preparers.”
The
IRS decided not to take the case to the Supreme Court, suggesting that it might
create a voluntary tax preparation credential.
But
instead of doing what I suggested in my ACCOUNTING TODAY editorial “What the IRS Should Do About the RTRP”, Commissioner John Koskinen announced a new
voluntary “Annual Filing Season Program” for tax return preparers at the end of
June.
The
Annual Filing Season Program does not issue to participants an actual
identifiable credential or designation, like “Registered Tax Return Preparer”.
Those who meet the program requirements will be issued a “Record of Completion”
certificate and be added to “a database
on IRS.gov that will be available by January 2015 to help taxpayers determine
return preparer qualifications”.
The
IRS explained that the new database will include information about those who
have been awarded a record of completion and “practitioners with recognized
credentials and higher levels of qualification and practice rights”, such as “attorneys, certified public accountants
(CPAs), enrolled agents, enrolled retirement plan agents (ERPAs) and enrolled
actuaries who are registered with the IRS”.
In
order to receive a Record of Completion currently unenrolled preparers must
complete 18 hours of continuing professional education (CPE) classes annually
from approved education providers. The
CPE must include:
• 6
hours of a federal tax filing season refresher course,
• 2
hours of ethics, and
• 10
hours of other federal tax law topics.
The
program does not require an initial competency test. Participants are, however, required to pass a
comprehension test upon completion of the filing season refresher course each
year.
For
the initial 2015 tax filing season preparers will only need to complete 11
hours of CPE in calendar year 2014, including the full 6-hour refresher course
and 2 hours in ethics.
Preparers
must also consent to the “duties and
restrictions relating to practice before the IRS in subpart B and section 10.51
of Treasury Department Circular No. 230” before receiving the record of
completion.
Under
the new program, only preparers who have been awarded a record of completion
(and, of course, EAs, CPAs, and attorneys) “will
be permitted to represent taxpayers before the IRS during an examination of a
return that they have signed or prepared”.
I
discussed the flaws in this new voluntary program in my editorial “There Are So Many Things Wrong with the Annual Filing Season Program” at ACCOUNTING TODAY.
The
AICPA filed a federal lawsuit challenging the legality of the program. But D.C. federal Judge James E. Boasberg, the
same judge who issued the initial decision in Loving vs IRS, dismissed the
suit, stating “. . . the AICPA didn’t
have the authority to sue the authority because it was not harmed by the
Program”.
Judge
Boasberg recognized the AICPA’s true motivation for filing the lawsuit -
“. . . the crux of [the AICPA’s] concern is
apparent: its membership feels
threatened by the specter of increased competition from previously
uncredentialed tax return preparers who choose to complete the program.”
The
AICPA filed an appeal of Judge Boasberg’s decision with the DC Appellate Court.
Despite
all the talk about the need for true tax reform in 2013 and 2014 the idiots in
Congress did absolutely nothing about the federal income tax in 2014. The tax reform debate limited its focus to
corporate tax reform as the year progressed, with the issue of “tax inversions”
taking center stage.
The
Tax Foundation did a good job of explaining just what a “tax inversion” is –
“In its simplest form, an inversion is simply
the process by which a corporate entity, established in another country, buys
an established American company. The transaction takes place when a foreign
corporation purchases either the shares or assets of a domestic corporation or
a when a U.S. corporation purchases the share or assets of a foreign
corporation. Some inversions involve the purchase of both the shares of
ownership and the corporate assets. The shareholders of the domestic company
typically become shareholders of the new foreign parent company. In essence,
the legal location of the company changes through a corporate inversion from
the United States to another country. An inversion typically does not change
the operational structure or functional location of a company.
The change in legal
residence from the United States to another country allows the company to take
advantage of the more favorable tax treatment of the new home country.”
In
September the Treasury Department took action to make inversions harder and
less profitable, removing some of its appeal.
The
tax inversion controversy brought attention to the fact that the US has one of the
highest corporate tax rates in the world and calls for reducing corporate
taxes.
In
early December retiring Senator Tom Coburn’s added fuel to the tax reform
debate by issuing “Tax Decoder”, a report that revealed more than 165
“giveaways” worth over $900 billion in 2014 and more than $5 trillion over the
next five years.
Coburn
agreed with me that Congress should “. . . throw
out the entire tax code and start over”.
The
most popular topics at 2014 CPE offerings were the new IRS repair and capitalization
regulations, issued in the fall of 2013, and the Obamacare individual
mandate. Both are complicated PITAs, and
are expected to create havoc with 2014 tax returns filed in 2015.
We
had the opportunity to “vote the bastards out” in November, when all 435 seats
in the House of Representatives were up for grabs. I once again urged voters to “get a GRIP” (Get Rid of Incumbent Politicians), but my plea was ignored
as, for the most part, the same idiots who have done nothing but take up space
in Washington were re-elected. I guess
the voters felt “the idiot you know is better than the idiot you don’t”. So the 114th Congress will be no
better than the 113th Congress, which, if not the worst, was
certainly the least productive Congress in history.
Once
again the year ended with the idiots in Congress waiting until literally the
last minute to pass an extension of all of the expired “tax extenders”. However they were extended through December
31, 2014 only. President Obama signed
the bill into law on December 19th.
So,
also once again, thanks to the irresponsibility of our elected officials in
Washington next year’s tax filing season will very likely have a late start,
although the IRS Commissioner has said it would not.
And
2014 ends just like 2013 – with the status of the “tax extenders” for the
coming year up in the air.
TTFN
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