WHAT’S THE BUZZ, TELL ME WHAT’S A HAPPENNIN’ - SPECIAL THURSDAY EDITION

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

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

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

 

Did I tell you that the current members of Congress are idiots?

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

Here are a few -

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

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

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

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

* Jason Dinesen of DINESEN TAX TIMES explains “If You’re a Sole Proprietor, There’s No Such Thing as a ‘Salary’ for Tax Purposes” -

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

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

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

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

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

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

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

 http://www.nclc.org/images/pdf/debt_collection/letter-private-collection-of-tax-debt.pdf.

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

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

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

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

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

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

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

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

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

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

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

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

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

Dumb is a good description.

 

See also Joe Kristan's Tax Roundup commentary on this nonsense.

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

TTFN

 

WHAT’S THE BUZZ, TELL ME WHAT’S A HAPPENNIN’ - TUESDAY EDITION

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

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

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

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

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

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

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

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

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

Peter rightfully ponders –

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

What do you think? 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

TTFN

THE DFBs!

The DFBs (clean version = damned fool bureaucrats). 

 

NJ.COM reports “State Wrongly Tells 2,000 Taxpayers They Underpaid Their 2013 Taxes; Won't Send Notice About Mistake”.

We are told (highlight is mine) -

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

And –

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

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

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

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

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

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

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

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

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

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

TTFN

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

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

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

* Good news via the INSTITUTE FOR JUSTICE - “Court Victory over IRS for Independent Tax Preparers Is Final: IRS Won’t Whip‘ Dead Horse’ Law Any Further—Declines to Seek U.S. Supreme Court Review of Ruling”.

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

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

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

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

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

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

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

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

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

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

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

We are told –

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

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

Refundable credits are a magnet for tax fraud and do not belong on the Form 1040!

 

* Jason Dinesen begins what appears to be a series of posts at DINESEN TAX TIMES on “Things Tax Preparers Say” on the subject of “S-Corporation Compensation”. 

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

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

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

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

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

Her concerns include -

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

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

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

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

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

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

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

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

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

TTFN

IT AIN'T NECESSARILY SO

Another entry on the list of clients who are screwed by the Tax Code – those who invest in tax-exempt bonds.

Interest on municipal bonds, and dividends from mutual funds that invest in municipal bonds, are exempt from federal income tax – right?  Well it ain’t necessarily so!

Tax-free income from state and local municipal bonds and municipal bond funds is included in the calculation of the taxable portion of Social Security and Railroad Retirement benefits.  Those of you who have been following this series know that tax-exempt municipal bond income can actually be taxed at a rate of 12.75% (taxpayers in 15% bracket) or 21.25% (those in 25% bracket). 

While tax-exempt income is not included in AMT, the additional taxable portion of Social Security and Railroad Retirement benefits that result from investments in municipal bonds is included, so, because of the variety of AGI-based reductions of deductions or credits, the effective tax rate on municipal income for those in these brackets can be even higher.  

Tax-free income from a category of municipal bonds known as “private activity bonds” is considered a “tax-preference” for purposes of calculating the dreaded Alternative Minimum Tax (AMT).  According to Wikepedia “a private activity bond is a bond issued by or on behalf of local or state government for the purpose of financing the project of a private user”.  If you are a victim of the dreaded AMT the interest from this type of bond could be taxed at a rate of from 26% to 35% (as explained in another previous entry in this series).

And income from tax-exempt bonds, of any category, could cause you to pay a higher premium for Medicare Part B and part D coverage.

As the Social Security Administration explains – “If you file your taxes as “married, filing jointly” and your MAGI {Modified Adjusted Gross Income – rdf} is greater than $170,000, you will pay higher premiums for your Part B and Medicare prescription drug coverage. If you file your taxes using a different status and your MAGI is greater than $85,000, you will pay higher premiums.”

Your MAGI is the total of your Adjusted Gross Income plus your tax-exempt interest.

The additional monthly payment goes from $42.00 to $230.80 for Part B and from $12.10 to $69.30 for Part D – depending on the amount of your MAGI and your filing status.

TTFN

STILL MORE CLIENTS SCREWED BY THE TAX CODE

I ain’t done yet.  The list of taxpayers screwed by our current Tax Code is not a short one.  Today I add taxpayers with gambling winnings.

While this did form of screwing did not happen to any of my clients this past tax filing season, it certainly has in the past.

Included in my client list are regular lottery players and senior citizens who frequent the casinos of Atlantic City.  Over the years I have seen many examples where a taxpayer with net gambling losses for the year is royally screwed by Uncle Sam.

· As I recently explained (in my first example of clients being screwed by the Tax Code), because of the way Social Security and Railroad Retirement benefits are taxed there often exists a situation where you could be taxed on $1.85 for every additional $1.00 of income. If you have $3,000.00 in gambling winnings and $4,000.00 in gambling losses you could end up increasing your AGI by $5,550.00 ($3,000.00 x 185%). Even if you can take full advantage of an itemized deduction of $3,000.00 in losses, you still could end up paying $383.00 in federal income tax in the 15% bracket, or $638.00 in the 25% bracket, on a net loss for the year of $1,000.00.

· Even if you can deduct enough losses to wipe out your gambling income, an increased AGI could reduce your allowable medical and miscellaneous job and investment related deductions, reduce or even wipe out a multitude of deductions and credits that are affected by AGI, and even cause you to fall victim to the dreaded Alternative Minimum Tax (see Monday’s post).

· You can only receive the full tax benefit from deducting gambling losses if the total of your other Itemized Deductions equals or exceeds the allowable Standard Deduction. The Standard Deduction for a Single filer for 2013 was $6,100.  What if a single taxpayer with $5,000.00 in winnings and $6,000.00 in losses had only $3,000.00 in other deductions (i.e. state and local taxes and charitable contributions). While he/she can deduct $5,000.00 in gambling losses, he/she only gets a tax benefit for $1,900.00 of the losses: $5,000.00 losses + $3,000.00 other deductions = $8,000.00 Schedule A - $6,100.00 Standard Deduction = $1,900.00 tax benefit. If he/she is in the 15% bracket he still ends up paying $465 in federal income tax on $1,000.00 of losses, or $775 if in the 25% bracket.

One way to minimize any screwing from gambling winnings is to keep very good records.  See my MAINSTREET.COM item “Not Keeping Track Turns Gambling Winners Into Tax Losers”.

TTFN

WHAT’S THE BUZZ, TELL ME WHAT’S A HAPPENNIN’ - TUESDAY EDITION

* Please say it isn’t so!  Kay Bell warns that “Private Debt Collectors Could Be Coming After Taxpayers Again” at DON’T MESS WITH TAXES.

Read my lips – The IRS, or a state tax agency, should NEVER be allowed to use an outside collection agency to collect outstanding tax debt!!

A collection agency makes money by collecting money from alleged debtors, whether or not the debt is genuine.  A collection agency could care less if the person they are dunning actually owes the money – they only care about collecting money. 

The function of the IRS, or a state tax agency, is tax administration.  They have a fiduciary, and perhaps even legal, responsibility to make sure that any alleged outstanding tax debts are genuine.

It has been proven again and again that using an outside collection agency is not financially beneficial.  The last two times the IRS tried this were disasters, as Kay explains (highlights are mine) -

“The 1996 debt collector pilot program produced a $17 million net loss for Uncle Sam. Plus, the participating collection firms were repeatedly found to violate the Fair Debt Collection Practices Act.

A reboot authorized as part of the American Job Creation Act of 2004 allowed the private debt collectors to keep up to 24 percent of what they recovered as a bounty payment. It turned out such financial rewards again prompted debt collector abuse and harassment of taxpayers.

This second time, the government's net loss was smaller, only around $4.5 million, but the private debt collectors pocketed more than $16 million in commissions.”

My advice to anyone who is contacted by an outside collection agency regarding an alleged tax debt has always been to tell the agency that they refuse to deal with anyone other than the applicable government agency.

* POLITICAL TICKER reports “Tax-writing Congressman Violated Tax Law”.  It’s not Chuck Rangel this time.

Republican Rep. Todd Young violated Indiana state, not federal tax law, by “claiming a property tax deduction for a house he didn’t live in”.

* Kay Bell, the yellow rose of taxes, pondered the question “Are Child-Related Tax Breaks Appropriate, Fair?” in her Mother’s Day post at DON’T MESS WITH TAXES.

I don’t believe we should tax married couples differently than singles.  There should be neither a marriage tax penalty nor a marriage tax benefit - the Tax Code should be marital-status neutral.  And, while I believe that the Tax Code should neither encourage nor discourage having children, I do believe there should be some additional deductions/benefits for families, or singles, with children and other dependents.

 

* Laurie Ehlbeck, New Jersey state director for the National Federation of Independent Business, tells it like it is in a guest editorial in the ASBURY PARK PRESS titled “High Taxes Spur N.J. Exodus”.

Laurie points out that -

“Between 2001 and 2010, New Jersey lost a net 179,000 income tax filers, according to IRS data compiled by the nonpartisan Tax Foundation. They left with more than $13 billion in adjusted gross income.”

Why the moves?  NJ has very high state income taxes.  And -

“Don’t forget that New Jersey also imposes the highest property taxes in America, and its sales tax is higher than all but a handful of states. Add it all up, and moving out of New Jersey is an easy decision for the people who can most easily move.”

* Jason Dinesen’s latest post at DINESEN TAX TIMES - “Glossary of Tax Terms: Community Property” -only applies to residents of Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.

 

TTFN

MORE CLIENTS SCREWED BY THE TAX CODE

Recipients of Social Security and Railroad Retirement benefits are not the only taxpayers who are screwed by the US Tax Code (see this post). 

Most of my clients are from New Jersey.  I have several two income families whose W-2 incomes are inflated because of the high cost of living and whose biggest tax deduction is the combination of real estate and state income taxes.  As a result, they are often victims of the dreaded Alternative Minimum Tax (AMT).

Taxes of any kind are not deductible in calculating AMT, and neither are personal and dependent exemptions, home equity interest, or Miscellaneous Expenses subject to the 2% of Adjusted Gross Income (AGI) exclusion (employee business expenses, investment expenses, tax preparation costs).

Here is another example where the tax cost of capital gains and qualified dividends is more than the advertised 0%, 15% or 20% maximum tax rate.

Long-term capital gains and qualified dividends are taxed separately at 0%, 15%, or 20% in the actual calculation of the AMT (page 2 of Form 6251) – but this income is included in AGI and therefore increases Alternative Minimum Taxable Income (AMTI).  The AMT exemption is reduced by 25% of the amount AMTI exceeds $153,900 for a married couple filing jointly.  So $10,000 of long-term capital gain could cost $2,150 and not $1,500– 21.5% and not 15% - or more because it reduces the AMT exemption, and increases the amount subject to AMT, by $2,500 ($10,000 x 25% - $2,500 x 26% = $650 + $1,500).

We are told that the AMT tax rates are 26% and 28%.  But for couples whose AMTI exceeds $153,900 (half of that for those filing separately and $115,400 for unmarried taxpayers) the effective tax rate on additional AMTI is actually 32.5% or 35% because of the reduction in the AMT exemption.  Additional income of $10,000 from any source other than capital gains or qualified dividends could cost $3,250 or $3,500 and not $2,600 or $2,800.

Of course the best solution to this problem is to do away with the dreaded AMT altogether in a complete rewrite of the Tax Code. 

TTFN

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

Another apology for lack of posts.  I am still working away on the GDEs, and have been taking long week-end trips.  This week-end I am off to Scranton.

* Russ Fox, author of TAXABLE TALK, offers “A Better Idea on Identity Theft” – certainly much, much better than the nonsense the IRS is apparently now requiring of EROs, which Russ first brought to our attention in his earlier post “Yes, Mom, I Need to See Your ID” (it led off Tuesday’s BUZZ installment).

In his “May 6^th Tax Round-Up” at THE ROTH AND COMPANY TAX UPDATE BLOG Joe Kristan makes a good point about identity thieves who file false 1040s that the IRS doesn’t seem to understand (highlight is his) –

“Most ID thieves work like Rashia Wilson, the self-proclaimed “Queen of IRS Tax Fraud.”  She used store-bought software to claim millions in tax refunds belonging to other people whose identities she had stolen.  ID thieves don’t walk into legitimate tax shops and pay to have fraudulent refunds claimed.” 

Since I am not an ERO the new requirements do not affect me – other than to make me commit to never becoming an ERO.  I will continue to prepare all my clients’ federal income tax returns manually.

Now if there only was a lobbying organization that represented all tax return preparers . . .

* Wait a minute.  Jason Dinesen suggests it may not be as big a problem as originally thought in “Hold the Phone on the IRS E-file Outrage Machine” at DINESEN TAX TIMES.

Jason has read in detail the publication in question and tells us (highlight is his) -

“The publication says we must do those things if the e-file authorization is signed electronically (meaning, not signed with paper and pen).”

And –

“For those of us who have our clients sign with a regular old pen and then mail, scan or fax the authorization form back, I don’t think anything changes and these new requirements don’t apply to us.”

As long as none of it applies to me!

I certainly agree with Jason’s bottom line that requiring credit checks is, to say the least, “over the top”.

* Jason also gives us a 2-part primer on how to calculate your federal income tax refund, or balance due, in “Tax Refunds and ‘Not Owing Tax’, Part 1” and “Part 2”   

 

* ACCOUNTING TODAY reports “IRS Commissioner Tells Congress about EITC Challenges with Tax Preparers”.

“Internal Revenue Service Commissioner John Koskinen testified before the House Ways and Means Oversight Subcommittee on Wednesday about the 2014 tax filing season and other matters, including problems with administering the Earned Income Tax Credit and oversight of tax preparers.”

The Commissioner “outlined a number of legislative proposals from the Treasury Department’s Gren Book and the Obama Administrations’s proposed budget” which includes “congressional approval of the IRS’s authority to regulate paid tax preparers” and expansion of the due-dilligence requirements for tax preparers claiming the EITC to “all federal income tax returns claiming the CTC (Child Tax Credit) and the ACTC (Additional Child Tax Credit)”.

I obviously oppose these legislative proposals.  The IRS should not be permitted to force licensure of paid tax preparers.  And the solution to tax fraud resulting from refundable credits is to do away with refundable credits.

Koskinen had been talking about instituting a voluntary RTRP credential program, but apparently nothing was said here.  So far it has been nothing but talk.  Does he expect Congress to hand the IRS the authority to regulated paid preparers so he does not have to institute the voluntary program?

* As Prof Paul Caron’s daily report on the IRS Scandal approaches Day 365 (today), ACCOUNTINGWEB brings us the word that “House Votes to Hold Ex-IRS Official Lois Lerner in Contempt”.

When are we going to hold Congress is contempt of the American public?

TTFN

WHAT’S THE BUZZ, TELL ME WHAT’S A HAPPENNIN’ - TUESDAY EDITION

* Russ Fox brings us more nonsense from the IRS for tax preparers in “Yes, Mom, I Need to See Your ID” at TAXABLE TALK.

“OK, I’ve known my mother for all of my life. But as of now I must check her ID when I file her tax return.”

Russ quotes from the new IRS publication of instructions for ERO’s (Electronic Return Originators), which are tax preparers who are authorized by the IRS to originate the electronic submission of a return to the IRS – i.e. file electronically (the highlight is mine) –

“The ERO must inspect a valid government picture identification; compare picture to applicant; and record the name, social security number, address and date of birth.  Verify that the name, social security number, address, date of birth and other personal information on record are consistent with the information provided through record checks with the applicable agency or institution or through credit bureaus or similar databases.  For in-person transactions, the record checks with the applicable agency or institution or through credit bureaus or similar databases are optional…If there is a multi-year business relationship, you should identify and authenticate the taxpayer.”

Russ tells us that in certain situations the IRS requires him to run credit checks on clients to verify identification.

Are they fucking kidding???  Thankfully I am not an ERO – and after reading this I never will be!

So rather then set up internal systems to set off an alarm if thousands of filed returns use the same mailing address, which happens to be a prison, the IRS is passing the responsibility for preventing identity theft on to the tax preparer.

OK, maybe I can understand requiring the preparer to ask to see a valid government picture ID for a new client who is otherwise unknown to the preparer.  But that is where it should end.

 * Jason Fichtner and Jacob Feldman explain it’s “Business As Usual” as “Congress is ready to pass a wasteful tax extenders bill again.” At USNEWS.COM.                

“Tax economists generally agree that temporary tax policies are ineffective for economic growth, so why will these tax breaks likely be renewed yet again?

The regular renewal of tax breaks is a vehicle for politicians to acquire financial and political support from special interests in exchange for tax handouts. In the 1990s, federal tax policy was relatively stable, with relatively few expiring tax provisions. But today’s large number of temporary tax provisions signals to those who benefit from the provisions that Washington is open for business.

Mercatus Center research finds that a higher number of temporary tax breaks means more spending and investment in lobbying activities.”

Just one more example of the fact that the idiots in Congress care more about themselves than the American public. 

* Forget the lies in those tv ads.  Jim Buttonow reveals “The Realities About the IRS Offer in Compromise Program” at CPA INSIDER.

“Television and radio are filled with ads claiming that taxpayers can settle their tax balances owed to the IRS. This settlement program is known as the IRS offer in compromise (OIC). Clients who can’t pay their taxes may inquire about this overhyped settlement option; however, according to IRS statistics, it is highly unlikely that most taxpayers who have outstanding balances will have an OIC accepted.”

* Mike Godfrey of TAXNEWS.COM reports “TIGTA Warns On IRS Obamacare Administration”.

“In his testimony to the United States Senate Appropriations subcommittee, the Treasury Inspector General for Tax Administration (TIGTA), J. Russell George, has questioned whether the Internal Revenue Service (IRS) will be able to administer effectively the tax provisions within the Affordable Care Act (ACA) – many of which are already in operation.”  

J. Russell ain’t the only person questioning this.

* A Republican President honored by the Kennedy family for raising taxes.  That’s what Michael Levenson of the BOSTON GLOBE tells us in “Former President Bush Honored for ‘90 Tax Hikes”.

Actually the senior Bush is honored for his “willingness to buck party orthodoxy and reach across the aisle” by making a move that cost him re-election.  A quality which is, as the article points out, “sorely lacking in today’s Washington”.

The item includes a keen observation from Olympia Snowe, former Republican senator from Maine who was serving in the US House at the time (highlight is mine) -

“Still, Snowe said, the bipartisan deal should be a model for a deeply polarized and paralyzed Congress that seems to lurch from crisis to crisis.

‘It’s tragic for the country when you consider how little has been accomplished because of their unwillingness to work together and build consensus on key questions,” Snowe said. “This is a moment to understand how it can work.’”

* Dr. Jean Murray provides employers “5 Tips for Hiring and Paying Teen Workers This Summer” at ABOUT.COM:US BUSINESS LAW/TAXES.

* There may be 50 ways to leave your lover, but according to TaxGirl Kelly Phillips Erb there are at least 11 reasons to leave your tax client in “She's Just Not That Into You: 11 Reasons Your Tax Pro Wants To Call It Off” at FORBES.COM.

TTFN

WHAT’S THE BUZZ, TELL ME WHAT’S A HAPPENNIN'

A brief BUZZ today – I am on Long Beach Island rewarding myself for clearing about half of the GDEs.

* ACCOUNTING TODAY reports that in response to a discovery mentioned in last Friday’s BUZZ “Senators Introduce Bill Banning Federal Bonuses for Tax Delinquents”.

 

* ASK JK (Lasser, that is) is asked, and answers, an interesting question – “I paid my property taxes with a credit card that charged a convenience fee. Can I deduct the conveniencefee?”.

* The IRS gives us an “Alert of New Email Phishing Scam: ‘Update Your IRS e-file”.  

* Jason Dinesen adds to the discussion on tax preparer regulation in “Preparer Regulation and Judging Preparers Based on Size of Refund” at DINESEN TAX TIMES.

I agree with what Jason has to say about taxpayers “chasing the bottom line” and judging tax preparers based on their refund or the refund of others.

“The source of the problem is that the public doesn’t understand how taxes work. And the source of that problem is two-fold: 1) the complexity of the tax code and 2) (perhaps to a lesser extent) refundable tax credits that people don’t understand but that they become addicted to.

Those problems need solutions. But requiring preparers to have licenses isn’t a part of the solution.”    

* Dr Jean Murray deals with the issue of “Who Is Self-Employed? Why It Matters” at ABOUT.COM – US BUSINESS LAW/TAXES.

 

TTFN