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Dear Fellow Tax Professionals -
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I would be very interested in hearing your opinions on the topics discussed in the following blog posts -
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Thanks!
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TAFN
Tuesday, June 30, 2009
Tuesday, June 23, 2009
DRAFT 2009 FORM 1040 AVAILABLE
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There is not much change.
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The only items of note-
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* The Making Work Pay Credit, calculated on Schedule M (a draft of which was previously released) is entered on Line 63; and
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* The new refundable portion of the education credit (called HOPE on the draft) is entered on Line 66.
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These two items are treated as "Payments" along with withholding, estimated tax, and other refundable credits. As such they will reduce "self-employment tax" and other taxes.
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TAFN
Monday, June 22, 2009
NJ STATE TAXATION EXPLAINED
JUST CAME ACROSS THIS CARTOON THAT DESCRIBES STATE TAXATION IN NEW JERSEY TO A "T"!
TAFN
NJNATP SUMMER NEWSLETTER
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The Summer 2009 issue of NJ TAXING TIMES, the newsletter of the NJ chapter of the National Association of Tax Professionals, is now available to download.
In addition to an article by yours truly, the newsletter also has information on the chapter’s 20th Anniversary celebration and its Annual Meeting.
Click here to download.
In addition to an article by yours truly, the newsletter also has information on the chapter’s 20th Anniversary celebration and its Annual Meeting.
Click here to download.
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TAFN
Friday, June 19, 2009
GO NJ!
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Philadelphia-based fellow tax-blogger Kelly Phillips Erb reports in her TAX GIRL blog post “Message from NJ: Amnesty Works” that “At the end of the program, the state had brought in an amazing $617 million”.
That is 3 times the $200 Million that is was hoped would be raised via the recent Tax Amnesty.
This is the 4th time NJ has had a successful Tax Amnesty Program.
Check out the post – and be sure to read my comments!
That is 3 times the $200 Million that is was hoped would be raised via the recent Tax Amnesty.
This is the 4th time NJ has had a successful Tax Amnesty Program.
Check out the post – and be sure to read my comments!
HOT TOPIC OF THE DAY - REGULATING TAX PREPARERS
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My recent wanderings around the blogosphere indicates that one of the biggest topics of the day involves IRS Commissioner Douglas Shulman’s recent announcement of plans to “propose a comprehensive set of recommendations to help the Internal Revenue Service better leverage the tax return preparer community with the twin goals of increasing taxpayer compliance and ensuring uniform and high ethical standards of conduct for tax preparers”.
Check out these blog posts on the subject –
Tax pros, prepare for more IRS oversight – DON’T MESS WITH TAXES
It’s Back! Again – OUR TAXING TIMES
Yes, I Still Don’t Want to Regulate Preparers - ROTH AND COMPANY TAX UPDATE BLOG
IRS to License and Regulate Tax Preparers and Hialeah Florida Tax Preparer Indicted For Preparing False Tax Returns: Still Don’t Want to Regulate Tax Preparers? - THE TAX LAWYER’S BLOG
But Tax Pros Are Already Certifiable… - TAXGIRL
License and Registration, Please, A Couple More Cents, and Why Does the AICPA Oppose Regulation of Unenrolled Preparers – THE WANDERING TAX PRO
So what do you think about regulating “unenrolled” preparers?
TAFN
Check out these blog posts on the subject –
Tax pros, prepare for more IRS oversight – DON’T MESS WITH TAXES
It’s Back! Again – OUR TAXING TIMES
Yes, I Still Don’t Want to Regulate Preparers - ROTH AND COMPANY TAX UPDATE BLOG
IRS to License and Regulate Tax Preparers and Hialeah Florida Tax Preparer Indicted For Preparing False Tax Returns: Still Don’t Want to Regulate Tax Preparers? - THE TAX LAWYER’S BLOG
But Tax Pros Are Already Certifiable… - TAXGIRL
License and Registration, Please, A Couple More Cents, and Why Does the AICPA Oppose Regulation of Unenrolled Preparers – THE WANDERING TAX PRO
So what do you think about regulating “unenrolled” preparers?
TAFN
Friday, June 12, 2009
THIS JUST IN!
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The IRS has just issued a “Draft” of 2009 Schedule M – to be attached to the 2009 Form 1040, 1040A or 1040NR. This new form will be used to calculate BO’s “Making Work Pay and Government Retiree Credits”.
The form uses “earned income” (to be described in the instructions), which apparently includes nontaxable combat pay, to calculate the Making Work Pay Credit. The credit is based on 6.2% of “earned income” up to a maximum of $400 or $800 if married filing jointly.
The form also calculates any “phase-out” of the credit based on excess AGI.
If taxpayer(s) received an “Economic Recovery Payment” (ERP) check of $250 (each) in 2009 this payment is subtracted from the Making Work Pay Credit.
The new Schedule M is also used to report the $250 “Economic Recovery Payment” (ERP) to which a person who receives “a pension of annuity in 2009 for services performed as an employee of the US Government or any US state or local government from work not covered by social security” is entitled.
The total allowable credit is carried forward to Line 63 on the 2009 Form 1040, Line 40 of the 2009 Form 1040A, or Line 60 of the 2009 Form 1040NR.
Click here to download the form.
The form uses “earned income” (to be described in the instructions), which apparently includes nontaxable combat pay, to calculate the Making Work Pay Credit. The credit is based on 6.2% of “earned income” up to a maximum of $400 or $800 if married filing jointly.
The form also calculates any “phase-out” of the credit based on excess AGI.
If taxpayer(s) received an “Economic Recovery Payment” (ERP) check of $250 (each) in 2009 this payment is subtracted from the Making Work Pay Credit.
The new Schedule M is also used to report the $250 “Economic Recovery Payment” (ERP) to which a person who receives “a pension of annuity in 2009 for services performed as an employee of the US Government or any US state or local government from work not covered by social security” is entitled.
The total allowable credit is carried forward to Line 63 on the 2009 Form 1040, Line 40 of the 2009 Form 1040A, or Line 60 of the 2009 Form 1040NR.
Click here to download the form.
HERE IS WHAT I THINK
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Considering the discussion generated IRS Commissioner Douglas Shulman’s recent announcement of plans to “propose a comprehensive set of recommendations to help the Internal Revenue Service better leverage the tax return preparer community with the twin goals of increasing taxpayer compliance and ensuring uniform and high ethical standards of conduct for tax preparers” I thought I would weigh in on the subject.
Of course Shulman was talking about, what Trish McIntire of OUR TAXING TIMES calls “the regulation that Congress can't seem to pass” – the licensing and regulation of “unenrolled” (not EAs, CPAs, or lawyers) tax preparers.
As Trish points out in her post “It’s Back Again” there is, “nothing new there. Nina Olson, the National Taxpayer Advocate, has been recommending licensing for years now. In fact, there have been bills before the last 3 Congresses which would require licensing. They have all died when that Congress ended because there were other more pressing issues distracting lawmakers.”
First of all, I am not a big fan of excessive government regulation of anything. However I do feel that there are times when government regulation if necessary to protect the public from unethical practices.
I am not calling for regulation of tax preparers, and would not complain if there were none, but I do not object to the idea – and actually support it. I am an ethical tax professional – so any reasonable (always the operative word) form of regulation should not adversely affect my 1040 practice.
The reason to regulate/license “unenrolled” tax preparers is because, as I have stated in the past, any cafone can hang out a shingle as a “professional tax preparer”. Currently there are very few states that actually regulate or license individuals calling themselves tax preparers. There is no standard to assure that a person who calls himself/herself a “tax preparer” actually knows his arse from a hole in the ground when it comes to the Tax Code.
One morning, not too long ago, while walking on Central Avenue here in Jersey City I saw a sign in the window of a barber shop that read “tax returns prepared here”. You could apparently get a haircut and a manicure and have your 1040 prepared all in one sitting! Many years ago, before I had my own office, I had considered renting a desk in an insurance or real estate office – it never occurred to me to rent a chair at a barbershop.
Of course Shulman was talking about, what Trish McIntire of OUR TAXING TIMES calls “the regulation that Congress can't seem to pass” – the licensing and regulation of “unenrolled” (not EAs, CPAs, or lawyers) tax preparers.
As Trish points out in her post “It’s Back Again” there is, “nothing new there. Nina Olson, the National Taxpayer Advocate, has been recommending licensing for years now. In fact, there have been bills before the last 3 Congresses which would require licensing. They have all died when that Congress ended because there were other more pressing issues distracting lawmakers.”
First of all, I am not a big fan of excessive government regulation of anything. However I do feel that there are times when government regulation if necessary to protect the public from unethical practices.
I am not calling for regulation of tax preparers, and would not complain if there were none, but I do not object to the idea – and actually support it. I am an ethical tax professional – so any reasonable (always the operative word) form of regulation should not adversely affect my 1040 practice.
The reason to regulate/license “unenrolled” tax preparers is because, as I have stated in the past, any cafone can hang out a shingle as a “professional tax preparer”. Currently there are very few states that actually regulate or license individuals calling themselves tax preparers. There is no standard to assure that a person who calls himself/herself a “tax preparer” actually knows his arse from a hole in the ground when it comes to the Tax Code.
One morning, not too long ago, while walking on Central Avenue here in Jersey City I saw a sign in the window of a barber shop that read “tax returns prepared here”. You could apparently get a haircut and a manicure and have your 1040 prepared all in one sitting! Many years ago, before I had my own office, I had considered renting a desk in an insurance or real estate office – it never occurred to me to rent a chair at a barbershop.
.
Early in my career, when I was working with my mentor Jim Gill at Journal Square (where the “Jersey Bounce” started), I came across a near-vacant room in the corner of the old bus station with large storefront windows. Inside the room was a person sitting on a folding chair at a card table with an adding machine – there was no other furniture or fixtures in the room. A hand-printed cardboard sign in the window advertised “Tax Returns Prepared Here”. What was sad was that I once actually saw a person in the room getting his return prepared.
To be honest the only way a taxpayer can be assured that a potential tax preparer has any actual knowledge of federal income taxes is if he/she uses an Enrolled Agent (EA). FYI, I am not an EA. Even the initials “CPA” do not automatically indicate that the person whose name precedes them is a tax expert.
Another reason that the IRS and Congress are concerned about regulating tax preparers is that there are many, many so-called “tax pros” out there who purposely prepare fraudulent tax returns, both known and unknown by the taxpayer client, to increase or create tax refunds, often charging the client a percentage of the refund. Must of this fraud occurs through the use of “refundable” tax credits such as the Earned Income Tax Credit.
Back when I started out in the business (before the EITC) my mentor told me the story of a local tax preparer that had been used by many police officers and other municipal employees in the area. You would bring your “stuff” to this person. He would ask how much you would like to get back. He would have you sign the Form 1040 in blank and basically make up enough deductions so that you would get the refund amount that you had asked for. If you asked for a refund of $5,000 your 1040 would indicate an overpayment of $5,087 or a similar number. This person was eventually caught.
A third reason involves recent government studies that have called into question the competence and ethics of the average “unenrolled” preparer.
A few years ago a Government Accountability Office (GAO) study resulted in a report to Congress titled “Paid Return Preparers: In a Limited Study, Chain Preparers Made Serious Errors”. The GAO sent undercover agents with two different tax scenarios to a total of 19 offices of 5 “fast-food” commercial tax chains in a metropolitan area. In only 2 instances was the correct refund calculated, but all 19 returns contained errors, many of them serious. In several instances the errors caused the “taxpayers” to pay more federal income tax than necessary.
To some degree tax professionals are already registered with the Internal Revenue Service via the issuance of a “Preparer Tax Identification Number” (PTIN). As a tax preparer I have a PTIN to use in lieu of my Social Security number when signing tax returns.
I also have a “CAF” (Centralized Authorization File) Number for use when a client/taxpayer elects to have me designated as a “authorized representative” (sort of like a limited Power of Attorney) when dealing with the IRS. While I expect that at this point every “legitimate” paid tax preparer has a PTIN, not all preparers have a CAF number.
It would be easy to build the IRS licensure/registration procedure on the existing PTIN registry.
Most of the bills regarding tax preparer licensure that have previously been introduced in (but not acted upon by) Congress have called for mandatory annual CPE (continuing professional education) requirements, similar to requirements for an Enrolled Agent (EA) or other professional licenses and designations (i.e. CPA and attorneys), and a mandatory initial proficiency test which one must pass to be able to prepare or continue to prepare 1040s (similar to the EA enrollment exam). Some proposals call for an annual test.
I wholeheartedly support the requirement for a specific amount of annual CPE credits per year as a condition of maintaining one’s ability to prepare tax returns. I attend many federal and state tax update seminars, workshops and conferences during the year – and I expect that I already “earn” more CPE credits each year than the requirement that would be set by legislation.
However I am firmly against a mandatory initial, or annual, test for ALL current and future tax preparers.
For one thing – I have been preparing tax returns professionally, and ethically, for 38 years. I have absolutely no intention of taking a test this late in my career to prove that I know what I am doing.
Secondly, and perhaps most important, it would be literally impossible for the Internal Revenue Service, or any outside contractor, to properly administer an initial, or annual, proficiency test to the current 1 Million + “unenrolled” preparers out there. It just cannot be done. The IRS has enough problems administering the EA exam, with only a few thousand tested each year.
I insist, and have urged NATP to do the same, that any tax regulation/licensure legislation must include some kind of “grandfather” clause for existing long-time tax pros.
Here is my proposal –
Every current tax preparer that has been in “the business” for at least five full years (60 months) and who has taken a minimum of 60 hours of continuing education in taxation during the past two years (24 months) would be exempt from taking an initial proficiency examination. These “grandfathered” preparers would be subject to the same annual continuing education requirements as those who had to take the competency exam to maintain their status. There would be no annual testing – only the initial exam.
While I support the registration/licensure of all tax preparers I do not believe that such a practice will eliminate, or even substantially cut down on, the number of unethical preparers or overall tax cheats. As long as the tax system is the convoluted mess that it currently is people will continue to cheat on their taxes, either on their own or with the help of unscrupulous preparers.
The most that registration/licensure can do is to provide some degree of protection to the taxpayer-consumer when it comes to choosing a tax preparer. I agree with Trish McIntire when she says, “Congress needs to allot money for a good, intensive education campaign about licensing and why taxpayers need to look for licensed preparers”. Registration must be followed by public education on the fact that taxpayers should use only registered/licensed preparers to complete their tax returns.
As Trish suggests, penalties should not be limited to non registered/licensed preparers. If registration/licensure is required for all paid tax preparers, taxpayers who use non registered/licensed preparers should also be penalized to some degree.
I must point out two more things before I end the post –
(1) This whole interest in ethics among tax preparers actually began with the ENRON scandal. The illegal and unethical practices of ENRON were perpetrated by CPAs – members of a very highly regulated group.
(2) The tax preparers “caught” in the GAO study of a few years ago that I mentioned above were all employees of fast food chains such as Henry and Richard and Jackson Hewitt, and not independent tax professionals such as myself. It is certainly no surprise, at least to me, that H+R Block and Jackson Hewitt tax preparers are incompetent.
And, oh yes, one final thing:
There is no doubt that any registration/licensure legislation will require at least 2 hours of CPE credits in “Ethics” each and every year.
Currently just about every single state and federal tax update class I attend has 2 hours devoted to “Ethics”, as the annual requirement apparently applies to CPAs and EAs. That means two hours less of actual tax knowledge being presented at each offering. If I am paying for 8 hours of CPE I am actually only getting 6 hours (really 5 hours, for as we all know I CPE hour = 50 minutes).
In many cases the topic is either first up in the afternoon or the last of the day – so I can either take a longer lunch or leave early. Other times I just zone out.
I have been preparing tax returns for about 38 years, without incident. If I do not have ethics by now sitting through 2 hours ain’t going to make me ethical. If I am so inclined to be unethical in my practice listening to a speaker tell me what is wrong is not going to make me “see the light”.
I do listen to one of the presentations maybe every other year to see if there are any new wrinkles.
I do believe that there should be some questions on ethics in any initial proficiency examination required of new preparers. And perhaps a requirement of 1 hour of CPE credit on ethics every other year as an update couldn’t hurt.
If tax preparer organizations and other CPE providers must offer 2 hours on ethics annually, please limit it to the year-end update class. Don’t take 2 hours away from real learning at each and every offering!
TAFN
Early in my career, when I was working with my mentor Jim Gill at Journal Square (where the “Jersey Bounce” started), I came across a near-vacant room in the corner of the old bus station with large storefront windows. Inside the room was a person sitting on a folding chair at a card table with an adding machine – there was no other furniture or fixtures in the room. A hand-printed cardboard sign in the window advertised “Tax Returns Prepared Here”. What was sad was that I once actually saw a person in the room getting his return prepared.
To be honest the only way a taxpayer can be assured that a potential tax preparer has any actual knowledge of federal income taxes is if he/she uses an Enrolled Agent (EA). FYI, I am not an EA. Even the initials “CPA” do not automatically indicate that the person whose name precedes them is a tax expert.
Another reason that the IRS and Congress are concerned about regulating tax preparers is that there are many, many so-called “tax pros” out there who purposely prepare fraudulent tax returns, both known and unknown by the taxpayer client, to increase or create tax refunds, often charging the client a percentage of the refund. Must of this fraud occurs through the use of “refundable” tax credits such as the Earned Income Tax Credit.
Back when I started out in the business (before the EITC) my mentor told me the story of a local tax preparer that had been used by many police officers and other municipal employees in the area. You would bring your “stuff” to this person. He would ask how much you would like to get back. He would have you sign the Form 1040 in blank and basically make up enough deductions so that you would get the refund amount that you had asked for. If you asked for a refund of $5,000 your 1040 would indicate an overpayment of $5,087 or a similar number. This person was eventually caught.
A third reason involves recent government studies that have called into question the competence and ethics of the average “unenrolled” preparer.
A few years ago a Government Accountability Office (GAO) study resulted in a report to Congress titled “Paid Return Preparers: In a Limited Study, Chain Preparers Made Serious Errors”. The GAO sent undercover agents with two different tax scenarios to a total of 19 offices of 5 “fast-food” commercial tax chains in a metropolitan area. In only 2 instances was the correct refund calculated, but all 19 returns contained errors, many of them serious. In several instances the errors caused the “taxpayers” to pay more federal income tax than necessary.
To some degree tax professionals are already registered with the Internal Revenue Service via the issuance of a “Preparer Tax Identification Number” (PTIN). As a tax preparer I have a PTIN to use in lieu of my Social Security number when signing tax returns.
I also have a “CAF” (Centralized Authorization File) Number for use when a client/taxpayer elects to have me designated as a “authorized representative” (sort of like a limited Power of Attorney) when dealing with the IRS. While I expect that at this point every “legitimate” paid tax preparer has a PTIN, not all preparers have a CAF number.
It would be easy to build the IRS licensure/registration procedure on the existing PTIN registry.
Most of the bills regarding tax preparer licensure that have previously been introduced in (but not acted upon by) Congress have called for mandatory annual CPE (continuing professional education) requirements, similar to requirements for an Enrolled Agent (EA) or other professional licenses and designations (i.e. CPA and attorneys), and a mandatory initial proficiency test which one must pass to be able to prepare or continue to prepare 1040s (similar to the EA enrollment exam). Some proposals call for an annual test.
I wholeheartedly support the requirement for a specific amount of annual CPE credits per year as a condition of maintaining one’s ability to prepare tax returns. I attend many federal and state tax update seminars, workshops and conferences during the year – and I expect that I already “earn” more CPE credits each year than the requirement that would be set by legislation.
However I am firmly against a mandatory initial, or annual, test for ALL current and future tax preparers.
For one thing – I have been preparing tax returns professionally, and ethically, for 38 years. I have absolutely no intention of taking a test this late in my career to prove that I know what I am doing.
Secondly, and perhaps most important, it would be literally impossible for the Internal Revenue Service, or any outside contractor, to properly administer an initial, or annual, proficiency test to the current 1 Million + “unenrolled” preparers out there. It just cannot be done. The IRS has enough problems administering the EA exam, with only a few thousand tested each year.
I insist, and have urged NATP to do the same, that any tax regulation/licensure legislation must include some kind of “grandfather” clause for existing long-time tax pros.
Here is my proposal –
Every current tax preparer that has been in “the business” for at least five full years (60 months) and who has taken a minimum of 60 hours of continuing education in taxation during the past two years (24 months) would be exempt from taking an initial proficiency examination. These “grandfathered” preparers would be subject to the same annual continuing education requirements as those who had to take the competency exam to maintain their status. There would be no annual testing – only the initial exam.
While I support the registration/licensure of all tax preparers I do not believe that such a practice will eliminate, or even substantially cut down on, the number of unethical preparers or overall tax cheats. As long as the tax system is the convoluted mess that it currently is people will continue to cheat on their taxes, either on their own or with the help of unscrupulous preparers.
The most that registration/licensure can do is to provide some degree of protection to the taxpayer-consumer when it comes to choosing a tax preparer. I agree with Trish McIntire when she says, “Congress needs to allot money for a good, intensive education campaign about licensing and why taxpayers need to look for licensed preparers”. Registration must be followed by public education on the fact that taxpayers should use only registered/licensed preparers to complete their tax returns.
As Trish suggests, penalties should not be limited to non registered/licensed preparers. If registration/licensure is required for all paid tax preparers, taxpayers who use non registered/licensed preparers should also be penalized to some degree.
I must point out two more things before I end the post –
(1) This whole interest in ethics among tax preparers actually began with the ENRON scandal. The illegal and unethical practices of ENRON were perpetrated by CPAs – members of a very highly regulated group.
(2) The tax preparers “caught” in the GAO study of a few years ago that I mentioned above were all employees of fast food chains such as Henry and Richard and Jackson Hewitt, and not independent tax professionals such as myself. It is certainly no surprise, at least to me, that H+R Block and Jackson Hewitt tax preparers are incompetent.
And, oh yes, one final thing:
There is no doubt that any registration/licensure legislation will require at least 2 hours of CPE credits in “Ethics” each and every year.
Currently just about every single state and federal tax update class I attend has 2 hours devoted to “Ethics”, as the annual requirement apparently applies to CPAs and EAs. That means two hours less of actual tax knowledge being presented at each offering. If I am paying for 8 hours of CPE I am actually only getting 6 hours (really 5 hours, for as we all know I CPE hour = 50 minutes).
In many cases the topic is either first up in the afternoon or the last of the day – so I can either take a longer lunch or leave early. Other times I just zone out.
I have been preparing tax returns for about 38 years, without incident. If I do not have ethics by now sitting through 2 hours ain’t going to make me ethical. If I am so inclined to be unethical in my practice listening to a speaker tell me what is wrong is not going to make me “see the light”.
I do listen to one of the presentations maybe every other year to see if there are any new wrinkles.
I do believe that there should be some questions on ethics in any initial proficiency examination required of new preparers. And perhaps a requirement of 1 hour of CPE credit on ethics every other year as an update couldn’t hurt.
If tax preparer organizations and other CPE providers must offer 2 hours on ethics annually, please limit it to the year-end update class. Don’t take 2 hours away from real learning at each and every offering!
TAFN
Tuesday, June 9, 2009
KUDOS TO THE IRS!
.
Say what you will about the Internal Revenue Service. If they have money for you, you can rest assured they will send it to you.
.
If, on the other hand, the State of New Jersey has excess tax money that is due to you they will keep it a secret and hope you do not find out about it - so they can keep the money to use to continue to fatten the State’s politicians and their “cronies” and supporters.
.
I recently learned of a situation –
A married couple, retired and receiving Social Security benefits, had a 2007 federal tax liability of ”0”. They received a $600.00 “stimulus” check from George W in 2008.
A married couple, retired and receiving Social Security benefits, had a 2007 federal tax liability of ”0”. They received a $600.00 “stimulus” check from George W in 2008.
.
For 2008 their tax liability was $17,000+, due to substantially increased taxable income from an excessive IRA withdrawal. However, they did not claim the $600 additional “recovery rebate credit” to which they were entitled on their 2008 Form 1040. There was a balance due on the return, which was paid in full by the April 15th deadline.
.
The couple just got a check in the mail from the IRS for $600 – which represents the additional “stimulus” rebate amount to which they were entitled. They received this separate check even though they did not request the additional $600 on their 2008 Form 1040!
.
So it appears that if, for some reason, a tax preparer did not claim any additional “recovery rebate credit” to which a client was entitled on your 2008 tax return Sam will send it to the client anyway!
If you FUed the client will get the money to which they are entitled anyway!Kudos to the IRS! The NJ Division of Taxation should be so ethical.
TAFN
If you FUed the client will get the money to which they are entitled anyway!Kudos to the IRS! The NJ Division of Taxation should be so ethical.
TAFN
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