Three Strikes for the RTRP Regulations?

In baseball it is three strikes and you are out, but what about lawsuits? Three individuals sued the IRS to stop them from implementing their new regulatory scheme for registered tax return preparers (RTRP). Following is the course of events.

January 18, 2013 – As the result of the lawsuit, Federal District Judge James E. Boasberg issued an injunction preventing the IRS from enforcing its new Registered Tax Return Preparer regulations. (Strike 1) The IRS then filed a motion to stay the injunction.


February 1, 2013 – Judge Boasberg denied the IRS’s motion to stay. (Strike 2) The court also went on to clarify the requirements of the injunction and to emphasize that the PTIN (preparer tax identification number) program was specifically authorized by Congress and therefore not covered by the judge’s ruling.


March 27, 2013 – The District of Columbia Circuit Court of Appeals denied the IRS’s request to suspend the January 18th injunction. (Strike 3) A three judge panel upheld Judge Boasberg’s refusal to lift the injunction against the IRS. The court found that the IRS had not satisfied the strict requirements for a stay pending appeal.


The next major step will be a merits briefing which will conclude with oral arguments before a three-judge panel of the District of Columbia Circuit Court of Appeals.


Judge Boasberg did clarify that tax preparers could take competency tests and continuing education courses but only on a voluntary basis while his injunction remained in place.


Has the IRS struck out with its RTRP regulations? Probably not, but it may take an act of Congress to accomplish their goal of licensing all tax return preparers who are not EAs, CPAs, or Attorneys.


What do you think?



RTRP Program Suspended - Answers to Your Questions

As you are probably aware, on January 18, the U.S. District Court for the District of Columbia issued a permanent injunction preventing the IRS from enforcing the RTRP regulations. On Wednesday January 23, the Justice Department, on behalf of the IRS, filed a motion to suspend the injunction pending resolution of the appeal that the IRS intends to file. On January 28, the Plaintiffs filed opposition to the IRS motion to suspend the injunction.

With all of these injunctions, motions, and oppositions you probably have questions about your participation in the RTRP program. Here are answers to some of those questions.


Will I still have to take the RTRP test? – No. At this time the RTRP test is no longer required. As such, the test is no longer offered by Prometrics. However, the Department of Justice, on behalf of the IRS, has filed a motion to suspend the judge’s ruling pending the IRS’s appeal. Stay tuned. The test may be reinstated in the future.


Will I still have to complete 15 hours of continuing education (CE)? – The answer is no, unless you are an EA, CPA or attorney. However, if you prepare individual federal income tax returns, in my opinion, it is in your and your client’s best interest to learn about the new tax laws and regulations affecting 2012 filings. CE is not currently mandatory for RTRPs, and any option to proceed with registering for or participating in a CE program is strictly voluntary.


Do I have to renew my PTIN to prepare tax returns for 2012? – We don’t know at this time. However, the IRS posted the following message on their Facebook page on January 29:


Currently we are working diligently to resolve issues surrounding the issuance of Preparer Tax Identification Numbers (PTINs) for the filing season. Additional information will be provided shortly as to how to obtain PTINs.


May I schedule a date to take the RTRP test? – No. The Federal Judge’s ruling has effectively closed the RTRP testing and registration process for the time being.


I am scheduled to take the RTRP test later this year, can I still take the exam? – No, not at this time. The Prometric testing system for RTRPs has been suspended until further notice. They have indicated that you will be notified when additional information is available.


I have already received my RTRP certificate. Can I continue to use the RTRP designation? – The future of the RTRP designation is currently unclear; however, I have seen nothing that would indicate you could not continue to use the RTRP designation if you have passed the exam and received your certificate.

Can I take the RTRP test prep course for CE? – Currently the judge’s order makes continuing education voluntary, but no CE will be awarded.


I expect that if the IRS does not win their appeal, Congress will pass legislation giving them the power to regulate unlicensed tax preparers…but when that might occur is anyone’s guess. What do you think?

Here Comes the Judge: New Ruling for Registered Tax Return Preparers

On Friday January 18, 2013, Judge James E. Boasberg of the United States District Court for the District of Columbia struck down the IRS’s Registered Tax Return Preparers (RTRP) program and enjoined the IRS from enforcing the regulations.

The Court’s Decision

• Boasberg ruled against the IRS and in favor of the unenrolled tax preparers. The ruling eliminates the requirement for unenrolled tax return preparers to pass the RTRP examination or to obtain 15 hours of continuing professional education each year in order to prepare income tax returns for pay.
• The ruling states that tax return preparers are not “representatives who practice before the IRS.” The court equated “practice” with advising and assisting taxpayers in presenting their cases before the IRS, and filing a tax return would not be described as “presenting a case.”
• The ruling also granted permanent injunctive relief, enjoining the IRS from enforcing its regulation scheme against unenrolled tax preparers.

Options for the IRS

The IRS has the following options:
• Abandon any further attempts to regulate unenrolled tax preparers.
• Appeal the judge’s ruling.
• Seek congressional statutory authority to regulate RTRPs.

Options for the Unenrolled Tax Preparer

RTRP’s have the following options:
• Go about business as usual with no need to pass the RTRP exam or obtain the required continuing education.
• Continue to comply with the RTRP regulations voluntarily.
• Become an Enrolled Agent.

The court ruling striking down the RTRP regulations does not have any effect on the IRS’s Preparer Tax Identification Number (PTIN) requirements. All paid tax return preparers will still have to obtain their PTIN each year.
If you plan to, or have already become an RTRP, I would recommend that you voluntarily take the 15 hours of continuing education each year. If the IRS does obtain the authority to regulate unenrolled tax preparers (which I believe is the likely outcome), you will be ready and up-to-date on the latest tax laws.

Here at Thomson Reuters, we have created courses, webinars, and a subscription package designed specifically to meet RTRP regulations. Regardless of the outcome of this ruling, we are happy to have developed products that are customized specifically for tax return preparers who need clear and succinct update training to meet the needs of their clients each tax season.

I think the IRS will probably seek congressional statutory authority to regulate RTRPs; however, with Congress’s lack of ability to pass any meaningful legislation it may take a very long time. What do you think?

THE AMERICAN TAXPAYER RELIEF ACT OF 2012 --SO WHERE’S THE RELIEF?

On January 9, 1984 a Wendy’s TV commercial first aired touting their hamburgers as having more meat than similar competitor’s burger. Three elderly ladies stand at the pickup window of one of the competitors looking at a very large hamburger. The first lady keeps saying over and over “It certainly is a big bun.” They remove the top half of the bun to disclose a very small meat patty. Finally the shortest member of the group, a woman who could barely see over the counter, asks, “Where’s the beef?” I think we should ask Congress, “Where’s the relief?”

I don’t see how they can call a piece of legislation, “The American Tax Relief Act of 2012” (ATRA) when the Act did not extend the 2% payroll tax reduction allowing the rate to increase back to its previous level of 6.2% of wages. By not sustaining the reduced rate they have in fact increased the taxes of every working American by 2%.


Pork Provisions

It has been estimated that ATRA includes some $70 billion in “Pork Barrel” spending. Congress’s addiction to pork has given us both new and increased deductions that will add to the deficit instead of reducing it. Some of my favorites include:


• Increased rebate amounts to Puerto Rico and the Virgin Islands of a tax on rum imported into the US. Estimated costs $222 million.

• Quicker write off of improvements by motorsport race tracks (NASCAR). Estimate costs $78 million.

• Tax breaks for TV and movie producers that allow them to more quickly write off expenses. Estimated costs $248 million.

• Tax credits of up to $2,500 for purchasing electric powered motorcycles. Estimated costs $7 million.

Here are some of the more significant provisions included in the bill:

Alternative Minimum Tax

Probably one of the better things included in the legislation was to make permanent the Alternative Minimum Tax (AMT) threshold and indexing it to inflation. The new threshold amount is $78,750 and $50,600 for married and single respectively.

Capital Gains and Dividends

The current maximum tax rate of 15% on net capital gains was extended permanently at 15% except for individuals earning $450K for married filing jointly and $400K for aingle filers. For these individual the rate increases to 20%.

Estate, Gift and Generation-skipping Tax

The tax exemption for the estate, gift, and generation-skipping tax was permanently extended at $5 million per person and indexed to inflation; however, the top rate was increased to 40%.

Individual Income Tax Rates

Current individual income tax rates (10% - 35%) were permanently extended, except for those individuals making $400K or more and married joint filers making $450K or more. For these taxpayers the top tax rate is increased to 39.6% .

Personal Exemption and Itemized Deductions Limitations

The personal exemption phase-out and the itemized deductions phase-out were repealed by the Act except for taxpayers with adjusted gross income of $300K for married filing jointly, $275K for head of household, and $250K for single.

It appears that ATRA has at least put a Band Aid on the budget but has done nothing to address the long term issue of deficit spending. By trying to ignore the problem they have been successful in taking a set of complex rules and regulations (Internal Revenue Code) and made them almost incomprehensible.

What do you think?

Special Studies on the American Taxpayer Relief Act Now Available

Thomson Reuters is pleased to offer five Special Studies on the American Taxpayer Relief Act, the new tax law recently signed by President Obama.

• 2012 Taxpayer Relief Act Protects Key Individual Tax Breaks
• Business Tax Breaks Retroactively Reinstated and Extended by the 2012 Taxpayer Relief Act
• Individual Tax Breaks Retroactively Reinstated and Extended by the 2012 Taxpayer Relief Act
• Estate and Gift Tax Relief in the 2012 Taxpayer Relief Act
• Energy-Related Tax Provisions Extended by 2012 Taxpayer Relief Act

 To receive a free copy of the above special studies visit this download page.

A Tale of Two Plans

There are barely 10 days left in 2012, and we are still waiting for Congress and the White House to forge an agreement that would prevent more than $600 billion dollars in tax increases and spending cuts from going into effect on January 1, 2013.

The House Republicans were originally scheduled to bring their Plan B legislation to the floor of the House for a vote. The bill would have raised the marginal income tax rate on household income in excess of $1 million. The Democrats felt that the $1 million dollar threshold was too high. The bill was unlikely to pass in the Senate in its current state.

The Republican bill (Plan B) would have:

• Allowed the top marginal income tax rate, capital gains rate, and dividend rate to expire after 2012 for taxpayers earning over $1 million per year. The top tax rate on ordinary income would increase to 39.6% for these taxpayers, and the top rate on capital gains and qualified dividends would increase to twenty percent (20%).
• Permanently extended the Bush-era tax cuts for taxpayers with income below the $1 million threshold
• Kept the estate tax at its current level. The current estate tax structure has a 35% top rate and a $5 million exemption. The exemption is indexed for inflation.
• Permanently increased the exemption for the individual alternative minimum tax (AMT) and indexed the exemption for inflation. (It is about time that Congress ended the charade of patching the AMT exemption amounts every year or two.) This provision would have been effective for tax years after December 31, 2011; i.e., it would have been retroactive to the beginning of this year.
• Permanently increased the Section 179 expensing limitation to $250,000 and indexed the limitation for inflation after 2013. The limitation would, however, be reduced if the cost of Section 179 property placed into service during the year exceeded $800,000.

Plan B did not include the spending cuts that House Speaker Boehner had offered in his previous negotiations with the White House. In addition, the plan did not reinstate the personal exemption phase-out limitations or the limitations on itemized deductions.

The Republican plan was announced when House Speaker Boehner rejected an offer from the President that called for $1.2 trillion in new tax revenue. President Obama's offer included provisions that would have allowed most of the Bush-era tax cuts to expire for taxpayers who earned over $400,000. The President’s offer included about $1.2 trillion in spending cuts.

The White House's plan to avoid the fiscal cliff reportedly includes the following:

• Permanently extends the Bush-era tax rates for those taxpayers earning below $400,000
• Returns the estate tax to its 2009 structure when the top tax rate was 45% and there was a $3.5 million exemption per spouse.
• Raises the top capital gains rate and dividend rate to 20%
• Reinstates the personal exemption phase-out limitations and the limitations on itemized deductions for married taxpayers earning over $250,000 and single filers earning over $200,000.
• Permanently patches the individual AMT exemption amounts
• Imposes caps on itemized deductions and major exclusions for upper-income taxpayers effective in 2014.

Although Plan B probably would not have passed in the Senate, it did provide a possible starting point for negotiations between the House and Senate that might have resulted in a compromise that would be acceptable to both chambers.

President Obama pointed out this week that he has offered a balanced deficit-reduction plan with more than $1 trillion in spending cuts. He feels that the White House’s offer is close enough to the Republican plan that it should be possible for both sides to approve his plan by Christmas.

On Thursday, December 20, the Republicans cancelled the vote on their “Plan B” tax plan.  The House Speaker indicated that there were not enough votes to pass the Republican bill.  Apparently the bill narrowly cleared a procedural hurdle this afternoon and that made passage of the bill look unlikely. The House also recessed abruptly. 

Based upon reports earlier today, it seems unlikely that a deal will be reached before December 25. Even if an acceptable compromise is reached, any final vote would probably occur after Christmas.

While most of the attention regarding the fiscal cliff has focused on the negotiations between Congress and the White House, the IRS is strongly urging Congress to pass the alternative minimum tax patch quickly. The IRS Commissioner said that nearly 100 million taxpayers out of the 150 million taxpayers who are expected to file could be prevented from filing their taxes until March 2013 or thereafter. This number is an increase from the 60 million affected taxpayers that the Commissioner estimated in November.

Absent swift congressional action, the Commissioner said that nearly 30 million taxpayers will become subject to the AMT unless the AMT patch issue is resolved soon. The resulting situation could cause lengthy delays in tax refunds and unexpectedly higher tax liabilities for taxpayers who were previously unaware that they would be subject to the AMT. Congress probably does not need to be reminded that there is a large block of registered voters among those 30 million taxpayers.

While Congress and the White House search for the sanity clause, we can at least thank Santa for our presents next week. Perhaps some of our elected officials in Washington need to have some spectral visitors stop by during the holiday season, not unlike Ebenezer Scrooge.

Coal in the Stocking: Proposed Regulations for Two New Taxes

Coal in the Stocking: Proposed Regulations for Two New Taxes

After enjoying Thanksgiving and a bountiful feast with my family and friends, I wondered how Congress and the White House would approach the issue of the looming fiscal cliff. Thus far, they have lived up to my expectations. It will be interesting to see how their game plays out over the upcoming weeks.

Recently, we learned more about two new taxes related to the Health Care and Education Reconciliation Act (HCERA) and the Patient Protection and Affordable Care Act (PPACA). The Department of the Treasury and the IRS gave us an early holiday gift by releasing proposed regulations related to the Net Investment Income Tax and Additional Medicare Tax. Since many tax practitioners are busy in December with year-end tax planning, the release of the proposed regulations is timely. The comment period ends on March 5, 2013, for both sets of rules.

Net Investment Income Tax

The new Net Investment Income Tax (NIIT) goes into effect starting in 2013. The Health Care and Education Reconciliation Act of 2010 added new Section 1411 to the Internal Revenue Code (IRC) and is effective for taxable years beginning after December 31, 2012. The 3.8 percent NIIT applies to individuals, estates, and trusts that have certain investment income above certain statutory threshold amounts.

Individuals will owe the tax if they have net investment income and also have modified adjusted gross income over the following amounts:

Filing Status	Threshold Amount
Married filing jointly	$250,000
Married filing separately	$125,000
Single	$200,000
Head of household (with qualifying person)	$200,000
Qualifying widow(er) with dependent child	$250,000

Note: These thresholds are not indexed for inflation.

Here is a list of what is generally included in net investment income:

·         Interest

·         Dividends

·         Capital Gains

o   Capital gains from sales of stocks, bonds, and mutual funds

o   Capital gain distributions from mutual funds

o   Gain from the sale of investment real estate (including gain from sale of a second home that is not a primary residence)

·         Rental and royalty income

·         Non-qualified annuities

·         Income from businesses involved in the trading of financial instruments or commodities

·         Businesses that are passive activities to the taxpayer (within the meaning of IRC Sec. 469)

The tax does not apply to any amount of gain from the sale of a personal residence that is excluded from gross income for regular income tax purposes.

The IRS indicated that the tax will be reported on and paid with Forms 1040 and 1041.

Estates and trusts are subject to the tax if they have (1) undistributed net investment income and (2) adjusted gross income over the dollar amount at which the highest tax bracket for an estate or trust begins in the taxable year. For tax year 2012, this threshold is $11,650. There are special computations rules for certain unique types of trust. In addition, there are some trusts that are not subject to the Net Investment Income tax.

Taxpayers who anticipate that they will exceed the thresholds listed above might accelerate net investment income to 2012 or take some gains in 2012 rather than facing the Net Investment Income Tax of 3.8 percent and the possibility of additional taxes if certain Bush-era tax cuts are not extended through 2013.

Additional Medicare Tax

The IRS also released its proposed rules regarding the Additional Medicare Tax. The tax applies to an individual’s wages, Railroad Retirement Tax Act compensation, and self-employment income that exceeds a threshold amount based on the individual's filing status. The rate of Additional Medicare Tax is 0.9 percent.

An individual is liable for the Additional Medicare Tax if the individual's wages, compensation, or self-employment income (together with that of his or her spouse if filing a joint return) exceed the threshold amount for the individual's filing status:

Filing Status	Threshold Amount
Married filing jointly	$250,000
Married filing separately	$125,000
Single	$200,000
Head of household (with qualifying person)	$200,000
Qualifying widow(er) with dependent child	$250,000

Taxable wages not paid in cash, such as noncash fringe benefits, are subject to the Additional Medicare Tax, if, in combination with other wages, they exceed the individual's applicable threshold. Tips are subject to the tax also.

The imputed cost of group-term life insurance coverage in excess of $50,000 is subject to social security and Medicare taxes, and to the extent that, in combination with other wages, it exceeds $200,000, it is also subject to Additional Medicare Tax withholding.

An employer is responsible for withholding Additional Medicare Tax from the wages or compensation paid to an employee in excess of $200,000 per calendar year. This is done without regard to the individual's filing status or wages paid by another employer. An individual may owe more than the amount withheld by the employer, depending on the individual's filing status, wages, compensation, and self-employment income. If this is the case, the individual should make estimated tax payments and/or request additional tax withholding using Form W-4, Employee's Withholding Allowance Certificate.

Individuals who are liable for the Additional Medicare Tax will calculate the Additional Medicare Tax liability on their individual income tax returns (Form 1040). They will also report the Additional Medicare Tax withheld by their employers on their Form 1040.

Note: An individual might have two jobs where his or her wages are below the $200,000 threshold at each job. However, the sum of those wages may exceed the threshold at which Additional Medicare Tax is owed. If any employee anticipates such a situation, he or she can make estimated tax payments and/or request additional income tax withholding using Form W-4.

Employers will be relieved to learn that there is no employer match for the Additional Medicare Tax. However, an employer that does not meet its withholding, deposit, reporting, and payment responsibilities for the Additional Medicare Tax may be subject to all applicable penalties.

Note: Taxpayers can be subject to the Net Investment Income Tax and Additional Medicare Tax but not on the same type of income.

While most of the attention during the past two weeks has been focused on the end of the Bush-era tax cuts and the fiscal cliff, this week's release of proposed regulations for taxes relating to the health care laws reminds us that we already have some concrete tax increases in place for 2013.