SO LONG, FAREWELL, AUF WIEDERSEHEN, GOOD NIGHT!

Joy to the world - tax season’s here.

I’ll soon be flush with cash!

Let every client be organized,

and give me all I need, and give me all I need,

and give me all I need to prepare their returns!

My 41st tax season will officially begin tomorrow - let the deluge begin!

As is my custom, due to the demands of the filing season I will be taking my annual “tax season hiatus” from posting to THE WANDERING TAX PRO, the NJ TAX PRACTICE BLOG, and THE TAX PROFESSIONAL.

Between now and April 16th I will barely have time to relieve myself let alone blog! I will NOT be answering emails from non-clients, nor will I have time to respond to comments. If a comment requires a response I will do so after April 17th.

I realize that I am abandoning you at a time when you may need me the most – but I need to make a living!

I find it a bit amusing that the period of time when TWTP gets the most “hits” is during the tax filing season when I am not posting.

“Talk” to you when it is all over!

TAFN

BTW – be sure to check out THE WANDERING TAX PRO tomorrow for the annual posting of my TWELVE DAYS OF TAX SEASON!

EVERYBODY WANTS TO GET INTO THE ACT!

Enough already!

I must register with the IRS and get a number (PTIN) if I want to continue to prepare tax returns for a fee, which is how I make my living.  I also have to take a test to prove to the IRS that I know what I have been doing for 40 years now.  And I have to maintain a minimum number of annual credits in continuing professional education in federal income taxation (I take more than the required annual CPE each year anyway – so this is not an issue).

Because I do about 20 New York resident and non-resident state income tax returns I also have to register with the State of New York, give Albany $100, and get another number for NY returns only, even though I do not live or work in New York.  NY CPAs and attorneys are exempt from this fee because the State already gets a licensing fee from them.  NY EAs were originally not exempt, but now are. 

The State of New York does not care if I know what I am doing – they just want my $100 (which I pass along to my NY clients as a $5.00 “NYS Tax Preparer Extortion Fee”).  However, a panel has recommended that those who prepare NY state income tax returns also take a test and maintain minimum annual state-specific CPE. 

When the NY state registration first came out I knew that once NY was successful in charging “unenrolled” tax preparers everywhere in the world $100 for the privilege of preparing a state return, other states would follow its lead as an easy way to raise additional funds for its legislatures to waste on pork and entitlement.  NJ legislators love to waste taxpayer money on pork and entitlements – and this would be a natural for them.

Now a colleague has informed me that “The New Jersey Assembly Regulated Professions Committee is considering A.1752 {the Tax Preparers Licensing Act – rdf}, which would create a State Board of Tax Preparers and establish requirements for tax preparers. Enrolled agents (and other legacy Circular 230 practitioners) are exempted in the bill. However, unlike other state legislation, tax preparers are not exempted (i.e., "grandfathered") by virtue of length of practice.”

This Act states –

“No person shall provide, nor present, call or represent himself as able to provide, tax preparation services for compensation unless licensed in accordance with the provisions of this act.”

And –

“No person shall assume, represent himself as, or use the title or designation “tax preparer” unless licensed pursuant to the provisions of this act.”

It creates a “State Board of Tax Preparers” within the NJ Division of Consumer Affairs to administer the licensure of paid tax return preparers, which is made up of 3 political patronage members and 4 actual tax preparers.

In order to be licensed a tax preparer must –

·      be of good moral character,

·      have successfully completed high school or its equivalent,

·      have successfully completed an approved course of study of 60 hours, which includes instruction in basic personal income tax law, theory and practice, and

·      have passed an examination administered or approved by the Board, which measures the applicant’s knowledge of New Jersey and federal personal income tax law, theory and practice.

Licensed tax preparers will also have to complete continuing education courses, the number of actual credits, not to exceed 20 hours every two years, to be determined by the Board.

And, of course, “A fee to be determined by the board shall accompany each application for licensure”, which must be renewed, for another fee, “biennially”.  I expect that there will be another license number issued that preparers will have to enter on NJ returns.

The Act would exempt attorneys and CPAs licensed to practice in NJ and Enrolled Agents.  As usual the exemption of attorneys and CPAs is ridiculous.  I would even question the exemption of EAs when it comes to state tax issues.

It is unclear if only those preparers who live and work in NJ must be so licensed, or if anyone who wants to prepare a certain number of NJ individual income tax returns, regardless of location, be licensed.

The Board will be able to revoke a license under a variety of conditions.

OK.  Either the federal government, in the form of the Internal Revenue Service (or, as I have suggested) an independent industry-based agency, tests and credentials tax return preparers, like they do with Enrolled Agents, or the individual states test and license tax return preparers, as is done with CPAs and attorneys.  Having both is ridiculous. 

A person who wants to prepare income tax returns for a fee currently must register with the IRS and pass a competence test maintained by the Internal Revenue Service.  Under the proposed NJ act, If that person happens to live in New Jersey and wants to also prepare NJ-1040s he/she will have to be tested again on federal tax issues.  If he/she does not pass this test he/she cannot prepare either federal or state tax returns, although the federal government allows him/her to preparer federal 1040s?

Does the IRS not share the names of resident PTIN holders with the individual states, so that the states need a separate registry? 

I can see the need for CPE in resident state tax issues.  The IRS could amend the federal CPE requirements to include 4 hours annually in state-specific tax updates, either as part of the current 15 hours or in addition thereto.  I already take 8 hours in state CPE (mixed NJ and NY) each and every year, so, again, this would not affect me.

NJ wants tax preparers to take a 60 hour course in basic federal and state tax topics to be licensed.  I learned how to prepare federal and state income tax returns not by taking any classroom courses but through “apprenticeship” – actually preparing federal and state income tax returns in the office of a tax professional.  This is a truly valid method of education. 

The text of the act does not mention any grandfathering.  Does that mean that I, who have been preparing federal income tax returns for 40 years and NJ state income tax returns for as long as there has been a state income tax, must now go back to school and take basic tax preparation courses?  You know damned well that I will not waste my money in this way.

To be honest, I would prefer individual state licensing of tax return preparers, under a Department of Consumer Affairs, to federal licensing by the IRS.  But, of course, I would require some kind of grandfathering of at least any basic course of study requirements, and for competency testing as well. 

A federal registry with PTIN issuance could be a part of each state’s requirement as an alternative to having each state issue separate license numbers.  In such a situation there should be no fee to register with the IRS and receive a PTIN, as there had been no fee to obtain a PTIN before the regulation regime was proposed.

Enough already!

What do you think?

TAFN

THE TAX PROFESSIONAL

You do know that, in addition to THE WANDERING TAX PRO and this blog, I also write a blog titled THE TAX PROFESSIONAL.

This blog is written for NJ tax professionals, and tax pros who prepare NJ state income tax returns.  THE TAX PROFESSIONAL is for tax pros everywhere.

As stated in the blogs inaugural post . . .

“ . . . the purpose of this site is to provide updated advice, information, and resources for tax professionals who prepare individual federal income tax returns. 

It will address individual income tax topics and issues relevant to both newcomers to the field and experienced veterans.

I hope it will also serve as a forum for discussion among professionals via the use of ‘comments’.”

The most recent post continues an ongoing discussion on measuring the success of tax preparer regulation.

So  if you have not already checked it out – please do so.

TAFN

A LETTER TO THE DIRECTOR OF THE NJ DIVISION OF TAXATION

As I had mentioned in my “review” of the recent NJ-NATP “Famous State Tax Seminar”, a member of the audience brought up a very serious problem with the NJ Division of Taxation.  To follow up on this I have sent the following letter to Michael Bryan, Director of the NJ Division of Taxation:

Dear Mr. Bryan:

Thank you for addressing the NJ chapter of the National Association of Tax Professional’s annual State Tax Seminar last Saturday, and for bringing along the state’s new Taxpayer Advocate, and speakers John Kelly and Jim Gordon.  Mr. Gordon’s annual presentation is always, at least for me, the highlight of the seminar.

I want to add my voice to that of a colleague who brought up a very serious “systemic” problem during the presentation by Sheri Silverstein - the current practice of the NJ Division of Taxation to totally ignore individual and business taxpayer overpayments.

If a taxpayer sends the IRS too much money in payment of a tax on a Form 1040, 1120, 1041, 941 or whatever, or submits a payment that the Service is not sure how to apply, the taxpayer will, relatively promptly, receive a letter from the IRS acknowledging the overpayment, or the unidentified payment, and asking what the taxpayer wants done with the money -. send a refund or apply it to another tax liability - or how to properly apply the payment.

If the NJ Division of Taxation receives an overpayment on a tax return, or an inadequately identified payment, it does absolutely nothing!  One has the impression that the Division hopes the taxpayer will not realize that an overpayment was made and therefore allow the State to keep the money.

This practice first came to my attention when I discovered a huge error in the processing of balance due 2005 Form NJ-1040s that were submitted online via NJWebfile. 

The NJWebFile system automatically created a payment voucher with pre-printed taxpayer and payment information.  The client would send a check to the NJ Division of Taxation along with this payment voucher in time to meet the April 15th deadline.

The error was that the extensive pre-printed code on the bottom of the voucher, which was “read” by the Division’s computer system when the payment was being processed, indicated that the payment was for tax year 2004 and NOT 2005. The payment was applied to the taxpayer’s 2004 “account”, obviously creating an overpayment, and in the fall the taxpayer received a billing notice for the tax due on the 2005 NJ-1040, which had already been timely paid, plus penalty and interest.

When this improperly applied payment created an overpayment in the 2004 “account” why did the NJ Division of Taxation not refund the overpayment, or send a notice to the taxpayer telling them that there was an overpayment on their 2004 account and asking for clarification, or apply the 2004 overpayment to the alleged 2005 balance due?  The Division totally ignored the existence of the overpayment, hoping to keep the money.  

This problem happened again in 2007.

In another example of this practice, I recently come across a situation where a corporate employer double-paid the NJ Gross Income Tax withheld from employees for the year.  I had submitted the payments quarterly when filing the NJ-927 online, and the taxpayer erroneously sent payment for the total withholding when filing the annual W-3 transmittal.  The NJ Division of Taxation has never contacted the client about this double payment.

This is a very serious problem that needs to be addressed as soon as possible.  If you need to contact me about this issue you can email me at rdftaxpro@yahoo.com.

Thank you for your cooperation.  I look forward to a change in the policy of the NJ Division of Taxation on this issue.

Very truly yours,

Robert D Flach

I also sent a “cc” to Sheri Silverstein, the NJ Taxpayer Advocate.

I would urge any fellow NJ tax professional who has come across this problem in the course of your practice to write a similar letter to the Director, with copy to the Taxpayer Advocate, detailing your experience.

I will let you know if I get a reply.

TAFN

OOPS - THEY DID IT AGAIN! PART II

The morning session ended with an update on New York state taxes presented by NY-NATP chapter president Michael Novick, an EA and an attorney, who was an excellent last-minute substitute for scheduled speaker Katherine Keane.  Michael was not as “colorful” a speaker as KK, but that is not necessarily a bad thing.

Mr. Novick told us –

·      NY, unlike the IRS, does “correspond” with taxpayers via email.

·      Clients can no longer “opt-out” of electronic filing of NY returns by tax preparers.

·      NY Lottery winnings of more than $600 can be used to “offset” outstanding tax debts.

·      As “same-sex” marriage is now allowed in New York, those who are so married must file NY state income tax returns as either Married Filing Joint or Married Filing Separate, regardless of the federal filing status.  No doubt this will cause lots of extra work for tax preparers.

The afternoon was devoted to New Jersey state updates, beginning with a presentation on NJ State Inheritance and Estate Tax by William Dorman of the NJ Division of Taxation.  There was apparently not much new for 2011, so the presentation was more of an overview of these taxes.

Mr. Dorman did point out that, when it comes to discovering new assets, the statute of limitations for NJ state inheritance and estate tax is 15 years!

Before the “famous” desert break we heard, as we had at many of the past January seminars, from John Kelly from the Division of Taxation.  John is the seminar’s “comic relief”.  He is entertaining and informed, but it seems that his purpose is to wake us up after lunch, with his booming voice and humorous comments and asides, so we are alert for the final presentation of the day.  The bottom line is he takes sometimes valuable time away from Jim Gordon.

As has become the custom, the reason most of us come was saved for last – the Jim Gordon Show (formerly known as the Jim and Jake Show).  From a scheduling point of view this is good, as it avoids a large section of the audience leaving early.  Depending on the amount of changes to NJ state income and other taxes this could be bad, with time running out before everything new is fully discussed.  This year it did not matter – as the timing was almost perfect.

Jim was thrilled to be able to report mostly good “stuff”, from our point of view as preparers, for a change.  He touted the new Director’s accomplishments and the State’s attempts to be more “business-friendly”, talking about the online NJ Business Action Center, the Taxpayer Advocate Office, the reduction in the “minimum tax” for sub-S corporations (which takes effect with calendar year 2012) and some minor UEZ changes. 

He spent much of his time on the new Alternative Business Calculation Deduction that begins in 2012.  For the first time, NJ-1040 filers will be able to, to some extent, net business income and losses from four separately reported categories – net profits/losses from business (federal Schedule C), net gains/losses from rents, royalties, patents, and copyrights, passed-through partnership income/losses, and passed-through sub-S corporations income/losses (federal Schedule E).  If a taxpayer had a rental loss and a self-employment profit he/she will now (beginning on 2012 returns filed in 2013) be able to reduce the self-employment income by the rental loss.  There is also a carryover feature for excess losses.    

This new deduction will be phased in over a 5-year period.

This is the best news for taxpayers to come out of Trenton in many years.  If it had been in effect for 2010 one of my client would have saved tens of thousands in NJ state income tax.  Click here for more information and several detailed examples of how the deduction will work.

Jim also told us that pizza parlors will be a top audit target for New Jersey, and that the homestead benefit issued in 2012 should be twice as much as last year and once again distributed as a credit on the municipal tax bill, possibly to show up on the first quarter payment due February 1^st.

As usual, two thumbs up to the NJ chapter’s Education Committee for another great seminar, with informed and effective speakers.  My only complaint is that the time allotted to the NJDOT’s Director was too small.  I would give him at least an hour in the future. 

Several years ago the seminar had as a speaker the Director of the NJ Division of Revenue.   His presentation was quite enlightening.  Perhaps it is time to invite this Division’s Director (I believe someone new) back again - in addition to and not instead of, the Division of Taxation Director.  I would like updates from, and the opportunity to question representatives of, both divisions.

I look forward to the various other education sessions that the NJ chapter will be offering during 2012.

TAFN

OOPS - THEY DID IT AGAIN! PART I

Conducted another successful “Famous” State Tax Seminar, that is.

I am talking about the New Jersey chapter of the National Association of Tax Professionals, whose annual state tax update seminar I attended on Saturday, as usual at the Woodbridge Hilton in Iselin.  I have been to just about every one of the 20+ the chapter has sponsored, missing only a couple due to the weather.

The room was packed full – thanks to the relatively good weather.  I was surprised that there were only two “vendors” who had rented tables.  While I personally do not visit the vendors at this function, I am concerned because this represents a loss of income to the chapter,  I wonder if the lack of vendors means the chapter charges too high a fee, or if other attendees also avoided the vendor tables as I do and not enough business was generated to justify the expense.  The two vendors who did show were new to NJ-NATP, and represented services of interest to many tax professionals.  I will admit I took one vendor’s brochure while passing through the hall.

The purpose of the seminar is to provide updates to and discuss new developments in the various taxes of the State of New Jersey and, often, the taxes of neighboring states.  If time permits there is usually also a general information presentation that is of interest to accountants and tax preparers.

The day’s schedule began, after the usual greetings, with an all-too brief “keynote” presentation by the current Director of the NJ Division of Taxation – Michael Bryan, CPA.  Whether the 30-minute time allotment was due to the Director’s schedule or the time constraints of the day’s itinerary I do not know.

Mr. Bryan had appeared at last year’s seminar, where he was touted as the “fair haired boy” with high expectations for reforming and repairing the NJDOT.  Coming to the seminar I had felt there was not much noticeable improvement in the Division in the past year.  I was, however, aware that, to his credit, the new Director had created a Director’s Advisory Council and a state Taxpayer Advocate Office.  Now, thinking back, it appears to me that I did not have to deal with as many NJDOT FUs in 2011 as I had in past years – so perhaps there has been progress.

The Director told us that NJDOT, like the IRS, in giving more scrutiny to claims for the Earned Income Credit.  If the IRS believes that close to 1/3 of all Earned Income Credit claims are fraudulent, it follows that a similar percentage of NJ claims could also be suspect.  All state returns that include the EITC are individually processed.

He also reported that he is making progress on processing correspondence.  All correspondence received by the Division is now initially scanned and entered into the system.  I have found over the years that the rule, and not the exception, is that my written correspondence to NJDOT is totally ignored.  If not totally ignored, I certainly do not receive any reply or response.

Mr. Bryan expects that electronic filing of state corporate income tax returns will begin for calendar year 2012 activity – for returns filed in 2013.  E-filing of CBT returns will not be mandatory.

The Director was followed by Sheri Silverstein, the chief of the new Office of the Taxpayer Advocate, who was given slightly more time.

Ms Silverstein discussed the guidelines for submitting cases to the OTA –

(1)  You face a threat of immediate adverse action for a disputed liability, or

(2)  You have experienced a delay of more than 120 days to resolve a tax account problem or in receiving a response to an inquiry to the Division.

Considering that my written correspondence is generally never responded to, I certainly have not received a response to an inquiry to the Division in more than 120 days – so I will be reviewing my 2011 state correspondence file later this week.

The OTA also investigates “systemic” problems – deficiencies in the NJDOT systems that affect many taxpayers.

One apparently submits a request for assistance from the OTA on Form NJ-OTA-911 (Request for Assistance from the Office of the Taxpayer Advocate).  This form was discussed by several speakers during the day, but no sample or blank form was included in our package of handouts.

During the Taxpayer Advocate’s presentation a member of the audience brought up a very serious “systemic” problem – which probably should have been done during the Director’s time – the fact that the NJ Division of Taxation does not acknowledge or question taxpayer, individual or corporate, overpayments.

If a taxpayer sends the IRS too much money in payment of a tax, or submits a payment that the Service is not sure where to apply, that taxpayer will, relatively promptly, receive a letter from the IRS acknowledging the overpayment, or the unidentified payment, and ask what the taxpayer wants done with the money (i.e. a refund or application to another tax, or where it should be properly applied).

If the NJ Division of Taxation receives an overpayment it does absolutely nothing, hoping that the taxpayer will not realize that an overpayment was made and therefore allow the State to keep the money to waste on political pork and entitlements.

 
This is indeed a serious ongoing problem, and one that I will address in a future posting at this blog.

The Taxpayer Advocate promised to “look into” the issue.

Another problem was presented by a few audience members.  It seems that a client wanted to dissolve a corporation and the tax pro submitted all the appropriate paperwork.  Before being issued a tax clearance the client is informed that the Division has no record of the 1990 (or 1991 or 1992) corporate income tax return being filed, and requests a copy before issuing the clearance and officially dissolving the corporation. 

Very few corporations, and even less tax professionals (although not me), would have a copy of a tax return filed 20+ years ago on file.  This certainly creates a hardship in the client and preparer, and causes delays that result in (already excessive) additional minimum corporate tax payments by the client.

In last year’s presentation Director Bryan discussed the issue of alleged “too old” tax deficiencies.  Here is what I reported in last year’s “review” of the NJ-NATP state tax seminar –

“A participant told the Director about receiving a notice from NJDOT for a tax (and accumulated penalty) due from the late 1980s. Mr. Bryan told us he was aware of this problem and that it was totally ridiculous. He plans to in the very near future establish a reasonable date and “write off” alleged outstanding balances from before this date.”

More work needs to be done on this issue – as more than one audience member had experienced the same problem when trying to dissolve client corporations.

Next up was the non-update presentation on “Relocating from New York/New Jersey to Florida – Tax Implications” from attorney Mary W Browning.  Ms Browning did a good job discussing residency and domicile issues as they apply to both the state income tax and state estate and inheritance tax.   

to be continued . . . . .

TAFN

NJ PRACTITIONER LIAISON MEETINGS AND SEMINARS

The I RS will be discussing various federal tax issues, such as Identity Theft, Preparer Tax Identification Number (PTIN), and Tax Law Updates at various locations throughout New Jersey and New York in January.

Click here for the dates and locations of the various NJ meetings.

Click here for a registration form for the meeting held at Seton Hall.

Click here for information on the NY meeting.

TAFN