Thursday, December 20, 2012

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.

Friday, December 7, 2012

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.




Tuesday, November 27, 2012

The Fiscal Cliff: A Perfect Storm

What is the Fiscal Cliff and how might our country be affected? The Fiscal Cliff is a “perfect storm” of three components: revenue increases, spending cuts, and the spiraling debt incurred by our government—paired with Congress’s failure to act to right any of these issues. Unless Congress acts to by the end of 2012, we will go over the fiscal cliff, likely sending our country into a double-dip recession. Watch this brief video with Winford Paschall, CPA, and Robin Thompson to hear more...


Checkpoint Learning offers Fiscal Cliff CPE webinars in addition to hundreds of online and webinar tax and accounting courses; click here to check them out: http://cl.thomsonreuters.com/CourseFinder/Search?keyword=W198T,W197T

Monday, October 22, 2012

RTRP Solutions from Checkpoint Learning and Quickfinder

Robin Thompson, Shari Phelps, and Pam Schieffer provide a quick look at how Checkpoint Learning and Quickfinder have teamed up to provide tax reference and continuing education designed specifically for the new Registered Tax Return Preparer designation. Quickfinder offers quick reference handbooks in multiple formats (including on iPad and Android tablets) that include helpful information that RTRPs need to know specific to their new designation requirements. Checkpoint Learning provides an online CPE course package with CPE tracking designed for RTRPs, and a Quickfinder-branded downloadable trio of print-based self-study courses (with online grading) that exactly meet the annual continuing education requirements for RTRPs. Big savings are available with either option; take a look to learn more.



For more information, please see:
http://cl.thomsonreuters.com/CPESolutions/RTRP
and
http://www.quickfinder.com/tax_products/tax_preparation/1040-reg-tax-return-p...

Quickfinder and Checkpoint Learning are part of the Tax & Accounting business of Thomson Reuters.

Monday, August 27, 2012

Gear Up Fall CPE Conferences: What’s New


Robin Thompson and Kirk Langman, Operations Manager for Instructor-Led Training for Thomson Reuters Tax & Accounting, talk about Gear Up CPE Conferences, particularly Royal Flush and Magic Week fall CPE conferences. Hear about what’s new for fall 2012 and what makes these week-long CPE conference events so popular with tax and accounting professionals. 



Tuesday, July 31, 2012

Free Course Offer Code

Looking for your free course offer code? Thank you for visiting the CPE & Training Solutions Blog to unlock special offer code: FREEAUG12

Click this link for special offer directions and details!

Monday, July 23, 2012

RTRP Courses and CPE Tracking from Checkpoint Learning: A Video Update

Judy Young, Ken Koskay and Winford Paschall talk about the Registered Tax Return Preparer (RTRP) requirements and testing process, and new offerings from Checkpoint Learning. New CPE courses in multiple formats (webinar, online, self-study with online grading, live seminar) are available to prep for the IRS exam and to meet annual CPE requirements, and Checkpoint Learning's CPE compliance tracking for RTRPs provides e-alerts, automatic CPE certificate submission to the IRS, and more.


Find out more at http://cl.thomsonreuters.com/CPESolutions/TaxPreparers

Wednesday, June 20, 2012

Checkpoint Learning 2012 Courses: A Video Update


Robin Thompson and Ken Koskay, vice president for Learning Solutions in the Tax & Accounting business of Thomson Reuters, talk about the 70+ new Checkpoint Learning courses and webinars launching in 2012.


Find out more at http://cl.thomsonreuters.com/CPESolutions/NewCourses

Wednesday, May 9, 2012

Rules for Political Participation by Churches and Other Nonprofits

With the national and local elections process in full swing, political contributions and participation in the political process are regular topics on the evening news. The dramatic increase in the amount of money being donated to and spent by the national campaigns is staggering.

During the last major election, I wanted to be part of that process, so I donated ten dollars to one of the major parties. They took my ten dollars, added fifteen dollars to it from some other donor, and then spent the combined twenty-five dollars trying to get me to donate ten more dollars. That is the worst business model I have ever seen, but I guess it works on some folks.

My contribution was not tax deductible; however, it was legal. Donations to a political organization by churches and other nonprofit organizations (NPOs), on the other hand, are strictly prohibited by Internal Revenue Code Section 501 (c) 3.

The Code also prohibits churches and other NPOs from directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office. Any church or other nonprofit organization violating this prohibition risks losing its tax-exempt status. The Internal Revenue Service does, however, provide resources to help these organizations understand the rules.

Actions Churches and Other NPOs May NOT Take
1. Endorse political candidates.
 2. Contribute to political candidates or political action committees.

3. Participate in fund-raising projects for political candidates.

4. Distribute a candidate’s political statements.

As part of its examination program, the IRS monitors whether organizations are complying with the prohibition. When the agency finds or is made aware of instances of noncompliance it may issue a warning letter or it may revoke the entity’s tax exempt status.

While the IRS has issued hundreds of warning letters intended to stop advocacy for political candidates, it has only revoked a church’s tax exempt status twice since the tax law was amended in 1954.

Certain activities or expenditures may not be prohibited depending on the facts and circumstances.

Actions Churches and Other NPOs May Take
1. Conduct non-partisan voter registration/education drives.

2. Host forums where all candidates are invited and treated impartially.

3. Rent a church or other NPO membership list (at market value) to a candidate.

4. Make voter’s guides available to members so long as the guides do not reflect a partiality which could be misinterpreted as an endorsement of a particular party or candidate.

Trivia
1. The first recorded tax exemption for churches occurred circa 312, when Constantine, Emperor of Rome granted the Christian church exemption from all taxation following his conversion to Christianity.

2. In 2010 the State of Oklahoma awarded tax-exempt status to a Satanist group called The Church of the IV Majesties.

When it comes to politics, churches and other nonprofit organizations have to walk a very fine line. While the prohibition for organizations does not apply to members, a member must be careful to inform an audience that he or she is speaking as a citizen and not on behalf of the organization.

Monday, April 30, 2012

Frequently Asked Questions About RTRP

Now that tax season is behind us and that last extension has been dropped in the mail it’s time to think about whether you or some of your staff need to take the new Registered Tax Return Preparers (RTRP) test. The test has been available since last November but the IRS and others recommended that you wait to take the test until after tax season. Following are some of the most frequently asked questions about the Registered Tax Return Preparer test.

1. What does the new IRS return preparer oversight program require?
The oversight program requires all paid tax return preparers to register with the IRS each year and have a Preparer Tax Identification Number (PTIN). Certain tax return preparers who prepare Form 1040 series returns must also pass a one-time competency test, a tax compliance check, and a suitability check.

2. Who must take the RTRP competency test?
All paid tax return preparers who prepare Form 1040 series returns, and are not CPAs, Attorneys, or Enrolled Agents, are required to take the test.

3. Can I take the test even if I’m not required to?
Yes. However, you must have a PTIN if you wish to take the test.

4. Is the test available in Spanish?
No. The test is currently available in English only and generally will be administered in a computer based-format.

5. How many questions are on the test and what is the minimum passing grade?
There are 120 questions in a combination of multiple choice and true or false formats. You will have two and a half hours to complete the test. A perfect score is 500 but you must score 350 (70%) or higher to pass the test.

6. Where do I go to take the test and is there a fee?
The test is administered by Prometric and can be taken at any one of its more than 260 sites throughout the U.S. The test fee is $116 and must be paid each time you take the test.

7. By what date must I pass the test?
Preparers must pass the competency test and a tax compliance chech by December 31, 2013.

8. Do I have to pass the test more than once?
No. Passing the test is a onetime requirement to become a RTRP.

9. Must RTRPs comply with any annual requirements?
Yes. Starting in 2012 you must complete 15 hours of continuing education each calendar year. The 15 hours must include two hours of ethics. three hours of federal tax law updates, and 10 hours of other federal tax law courses. These courses must be taken from an IRS-approved vendor.

10. Where can I find more general test information?
For more information on the testing requirements go to:
http://www.irs.gov/taxpros/article/0,,id=239683,00.html

RTRPs representation rights are limited to representation before certain IRS officers and employees and only in connection with returns they signed.

If you’re looking for an IRS-approved CE vendor with RTRP prep courses to help you pass the test and all the continuing education courses needed to stay current with the latest changes in federal tax law and fulfill the ethics requirement, then visit Checkpoint Learning.

Tuesday, April 24, 2012

How to Succeed in Business… Just Ask!


 Ask whom, you might wonder? The answer: your customers. Often businesses try to tell customers what they want rather than asking them what they need, and then fulfilling that need. Companies that do not listen to what their customers are saying can suffer grave consequences, as evidenced by the recent bankruptcy of the Eastman Kodak Company. How could a venerable company like Kodak that has been around for over 132 years, come to such an end? The answer: not listening to its customers. Kodak’s film business was its cash cow, so when customers began moving away from film and on to digital photography Kodak was concerned that if they moved with them it would cannibalize its film business. This concern made the company reluctant to embrace the new technology, even though Kodak invented it back in 1975. Other camera companies, like Cannon, listened to their customers, saw the opportunity and quickly began to address the needs related to digital photography. By the time Kodak realized that its future was not going to be selling film, it was too late. Their competitors had left them behind. In contrast to Kodak, the Encyclopedia Britannica, Inc. listened to what its customers were saying and made the move to digital publishing. They recently announced that they will no longer offer the 32 volume encyclopedia in a printed format. The company said it had been exploring digital publishing since the 1970s and published the first online encyclopedia in 1994. Wikipedia, the free online encyclopedia, didn’t come along until January 2001. Customers don’t always know what they want and they may think they want something they don’t need. So don’t ask them what they want; ask them what they need or ask them to identify their biggest challenge. You just might be able to provide them with a solution. What do you think?

Thursday, April 19, 2012

Yellow Book CPE Requirements: A Video Update

Winford Paschall, CPA, sat down with Robin Thompson to answer some questions on the CPE requirements under Generally Accepted Government Auditing Standards (GAGAS, also known as Yellow Book) for professionals who perform audits or attestation engagements, including the 80/24/20 continuing education equation.





Visit our website to browse CPE courses and solutions that will help you meet Yellow Book CPE requirements: cl.thomsonreuters.com/CPESolutions/YellowBook

Friday, March 16, 2012

Road to Somewhere: Tax Changes in the Senate-Passed MAP-21 Transportation Bill

When I filled my gas tank the other day, regular was still below $4 per gallon. The difference between the price I paid and $4 seems to have diminished faster than I would have preferred. Anyone who has watched the price of gasoline increase over the past year can understand why the business standard mileage rate increased from 51 cents per mile for travel during the first half of 2011 to 55.5 cents per mile for travel in the second half of 2011. As of January 1, 2012, the standard mileage rate is 55.5 cents per mile. If the price of gas continues to increase, the standard mileage rate will probably increase again.

The federal excise tax on gasoline is currently 18.4 cents per gallon, and there are 15 days left before current transportation funding and the authority to collect the federal gas tax that supports that funding expires. Congress is now paying close attention to the March 31 deadline.

The Senate voted on March 14 to pass an 18-month transportation bill, known as S. 1813, the "Moving Ahead for Progress in the 21st Century Act" or MAP-21. (MAP-21 sounds more like a food additive, a genome, or a distant star than the name of a bill.) Although the legislation primarily overhauls a number of federal highway-related programs, the bill does contain some important tax changes.

Here are some of the tax changes contained in the Senate-passed transportation bill. This is not a complete list.

Parity for employer-provided mass transit and parking benefits. For 2011, there was parity for exclusion from income for employer-provided mass transit and parking benefits. The exclusion was $230 per month for each of these breaks. However under current law, for 2012, the exclusion is $240 for qualified parking (due to an inflation adjustment) but only $125 for employer-provided transit and van-pooling benefits. Under the bill, effective for months after December 31, 2011, the 2012 exclusion amount for employer-provided transit and van-pooling benefits would be increased from $125 to $240.


Funding break for employers maintaining pension plans. As a result of the current, low interest rate climate, pension plan contributions have been very high, and there is concern in Congress that this will lead to more company layoffs or pension plan freezes. Under the bill, plan liabilities would continue to be determined based upon corporate bond segment rates, which are based on the average interest rates over the preceding two years. However, for plan years beginning in calendar year 2012, for purposes of the minimum funding rules, the segment rates would be adjusted up or down, as necessary, to an amount equal to either 90% or 110% of the 25-year historic average of interest rates, whichever is closest. In today's low-rate environment, the immediate effect of this change would be to raise interest rates for funding purposes and thereby lower the minimum required pension contribution. For plan years beginning in calendar year 2013, the interest rate "corridor" would expand in 5% increments each year until it reaches 30% above and 30% below the 25-year historic average of interest rates.

AMT relief for private activity bonds. Tax-exempt interest on private activity bonds issued after the enactment date and before January 1, 2013, would not be an item of tax preference for purposes of the alternative minimum tax (AMT). Additionally, tax-exempt interest on private activity bonds issued after the enactment date and before January 1, 2013, would not be included in the corporate adjusted current earnings (ACE) adjustment.

Longer write-offs for leased highway property. States may contract with a private entity to lease an existing highway or build a new one, and then operate the highway for a number of years. Although these transactions generally are structured as a lease (plus grant of a franchise permitting the private entity to collect tolls), the private entity is treated as the owner because it has the burdens and benefits of ownership. Under provisions of the bill, for leases entered into after the enactment date, the highway property would have to be depreciated over 45 years (instead of 15), and the cost of granting the franchise to collect tolls would have to be amortized over a period that is not less than the term of the applicable lease (instead of 15 years under Code Sec. 197).

Revocation or denial of passport of individuals owing more than $50,000 in back taxes. Effective on January 1, 2013, the bill would authorize the government to deny the application for a new passport or renewal of an existing passport when the individual has more than $50,000 (indexed for inflation) of "seriously delinquent tax debt." A seriously delinquent tax debt does not include a debt that is being paid in a timely manner under an agreement with the IRS or if the collection of the debt is on hold because of a collection due process hearing. The government also could revoke a passport upon reentry into the U.S. for such individuals.

In addition, the provisions of this bill allow the IRS to impose a levy of up to 100% (up from the current law's 15%) against Medicare service providers with tax delinquencies.

The bill now goes to the House of Representatives. It remains to be seen if all of the tax provisions in the Senate bill will be present in the final legislation. While the transportation bill works its way through the House, do not be surprised if the price of regular gas soon exceeds $4 per gallon. Once that threshold is exceeded, Congress may have some political incentives to add other provisions to this bill.

Thursday, March 15, 2012

RTRP Rules Challenged

The Arlington, Virginia-based Institute for Justice, on behalf of a couple of tax preparers, is challenging the Internal Revenue Service’s authority to regulate tax return preparers. The Institute plans to sue the IRS asking for an injunction against enforcement of the new Register Tax Return Preparer (RTRP) regulations. They claim that requiring tax preparers, who are not CPAs, Attorneys or Enrolled Agents, to pass a licensing examination (there is a fee of $116 to take the exam) and attend 15 hours of continuing education courses annually, will deprive them of their right to earn a living.

Well, I can tell you from personal experience: some of them need to be deprived.

When I was growing up, my dad was a struggling small business owner. He was one of those individuals who used an unregulated tax preparer. One year, the errors the preparer made on his return were so egregious that the IRS audited the return. Because of the nature of the errors, the agent went back and audited all open years. As a result my dad received a refund of over $1,000, which was a lot of money back in the 1960s, especially for someone like my dad who had struggled each year to pay those taxes.

There are three ways the group says these new regulations will negatively impact tax preparers and their clients:

1. It will put some tax return preparers out of business.

2. It could cause a financial hardship for their lower income clients resulting from the increased fees.

3. Their clients may have to find a new tax preparer.

My responses to the group’s allegations are as follows:

1. So be it. If they can’t pass a basic competency test they should not be preparing tax returns.

2. I don’t buy this. There are half a dozen or so entities that provide free tax return preparation, including the IRS’s Volunteer Income Tax Assistance (VITA) program. I realize that the free tax return preparation programs are primarily for the most basic tax returns, but if a return is more complex than a basic return you need the services of a qualified tax preparer. (See response 1 above.)

3. If they were using a qualified tax return preparer in the first place this would be a moot point, otherwise: See response 1 above.

What do you think?

Tuesday, March 13, 2012

RTRP Test Validation Concluded

The Internal Revenue Service has just announced that it has begun providing test results to tax return preparers who have taken the new return preparer competency test. Those who pass the test and a tax compliance check will be given a new designation: Registered Tax Return Preparer (RTRP).

Testing began in November 2011 and has been in a calibration phase since that time as the IRS validated the test questions and established the passing grade. The calibration phase has now ended. The test has a total of 120-question. A perfect score is 500. Preparers must score at least 350 (70%) in order to pass the exam. The test is part of a larger IRS effort to ensure competency and professional standards in the tax preparation industry. All RTRPs must also complete 15 hours of continuing education annually.

Although preparers have nearly two years to take the test (must pass the exam by December 31, 2013), the IRS encourages them to complete the requirement as soon as they can. Preparers with a testing requirement can schedule the test by accessing their PTIN account at IRS.gov/ptin. The test can be taken at more than 260 sites for a fee of $116. However, the IRS has announced that testing will be suspended for a two-week period beginning April 1 and resume on April 16, 2012. You can find more details about the test at IRS.gov/taxpros/tests.

If you're planning to take the test, check out the Registered Tax Return Preparers Competency Examination Prep Course from Gear Up, a one-day, comprehensive instructor-led course designed to provide you with the training you will need to pass the exam. Currently available this May or June in Arizona, California, Florida, Illinois, Oregon, and New Jersey; click to view more information or call 800.231.1860.

Thursday, March 8, 2012

Top 10 Ways to Manage Tax Season Stress

Tax season for me was always like a marathon, beginning in mid February and crossing the finish line on April 15. It was long hours, lots of coffee, and plenty of stress. I remember working late nights as the deadline approached and then around 10:00 p.m. on April 15 the managing partner would gather up all of the extensions for those returns we just didn’t have time to complete and made a mad dash for the local post office. So following is my top ten list of ways to reduce or at least manage your tax season stress.

1. Get rid of bad clients. Fire those clients that are not profitable, never have their information to you on time and usually cause you the most stress. We all have them, so do it now before tax season begins.

2. Organize your office. Having a disorganized workspace will only add to your stress, especially when a client calls and you can’t quickly find his or her file.

3. Hire a personal assistant. Having someone who can run errands for you will significantly reduce your stress.

4. Exercise and eat right. You will find that if you eat three healthy meals a day and exercise regularly you will reduce your stress and actually be more productive. But you have to do it consistently.

5. Get to the office early. Come in to the office thirty minutes to an hour before regular office hours. Use this time to get your day organized, respond to e-mail or do research while the office is quiet.

6. Take short breaks. Meditate for five or ten minutes, stand up, do a few exercises or take a walk around the block and just relax. Don’t think about work.

7. Prioritize your tasks. Time consuming but relatively unimportant tasks can consume a lot of your day. Focus on those returns that you can’t delegate to a junior staff person. Don’t jump from one return to another. Try to finish one before you start the next.

8. Set client deadlines. Manage your clients don’t let them manage you. Work on the returns of those clients who meet their deadlines. If the client doesn’t have their data to you when requested, file an extension. Don’t work till midnight to complete the return for a client who did not get his or her information to you when requested.

9. Finish before the deadline. Schedule your clients so that you have time to complete their returns a day or two before April 15. This is a built-in cushion for any unexpected problems and should reduce your level of stress created from last minute crises.

10. Make April 16 and/or April 15 an official holiday. A firm I once worked for made April 16 an official firm holiday. I always looked forward to that holiday as a chance to unwind and think about nothing relating to work.

So, put your running shoes on, see which of these suggestions you can use to reduce your stress level, and look forward to a less stressful tax season.

Thursday, March 1, 2012

GAO Makes Major Changes to 2011 Government Auditing Standards

On December 21, 2011 the GAO issued the final revised 2011 Government Auditing Standards (The Yellow Book). Following is a summary of the major changes to the standards.

• Added a conceptual framework for independence to provide a means for auditors to assess their independence to activities that are not expressly prohibited. The conceptual framework requires auditors to make independence determinations based on facts and circumstances that are often unique to specific audit environments. The conceptual framework achieves further harmonization with AICPA and international standards.

• Removed specific references to personal, external, and organizational impairments, and overarching independence principles (GAGAS 2007). However, the underlying concepts related to these categories have been retained in the new conceptual framework for independence.

• Established requirements for auditors performing nonaudit services for entities they audit, to document their assessment of whether management possesses suitable skill, knowledge, or experience to oversee the nonaudit service (3.33-3.44).

• Revised substantially the guidance on nonaudit services that always impair an auditor’s independence with respect to audited entities and on certain nonaudit services that may be permitted under appropriate conditions (3.45-3.58).

• Added a summary of requirements for documentation necessary to support adequate consideration of auditor independence incorporating requirements applicable under the new conceptual framework (3.59).

• Removed certain SAS and SSAE requirements that were repeated in GAGAS.

• Discussed separately the three categories of attestation engagements, (1) examination, (2) review and (3) agreed-upon procedures. Auditors are not permitted to deviate from the reporting elements prescribed by the AICPA.

• The reporting requirements for fraud now include only those occurrences that are significant within the context of the audit objectives for performance audits.

The numbers in parentheses refer to paragraphs in the 2011 Government Auditing Standards (GAGAS) unless otherwise noted.

The effective date for financial audits and attestation engagements is for periods ending on or after December 15, 2012. The effective date for performance audits is for audits beginning on or after December 15, 2011. Early implementation is not permitted.

Thursday, February 23, 2012

February—For a Short Month, It Certainly Seems Long

Congress passed legislation that extends the 2% employee payroll tax cut for another 10 months without significant tax offsets. As you may recall, the 2-percentage point cut was slated to expire on March 1, 2012. The bill also extends federal unemployment insurance benefits and prevents a scheduled cut in payments to Medicare providers from occurring during the remainder of 2012. The President signed the payroll tax cut bill on February 22. Last week, the President submitted his Fiscal Year 2013 budget and revenue proposals. It will be interesting to see what happens to these proposals as they work their way through Congress.

Since it is an election year, it is sometimes difficult to predict how Congress will react to proposals from the White House. In contrast to the rancor and political skirmishes that occurred on Capitol Hill in 2011 when Congress debated raising the federal debt ceiling limit and when Congress extended the 2% payroll tax cut for two months at the end of December 2011, last week seemed relatively calm inside the Beltway. For a couple of days, I thought that there was a big snow storm on the East Coast and that the Washington had shut down due to wintry weather. Instead, members of both parties decided to work towards a common goal—their re-election.

Although it is an election year, most individual taxpayers are more concerned about the filing deadline for their Form 1040. By now, taxpayers have received most of their 1099 forms. Some of us have also had the privilege of receiving a 1099 in their mailbox and an email later that same day from the payer indicating that an amended 1099 is going to be issued by the end of February. One point for the procrastinators who do not file their tax returns too quickly.

The full brunt of the busy season has arrived. Luckily, there was not a lot of major tax legislation in 2011. This is unlike the previous tax season where tax legislation was passed into law during a lame duck session of Congress in late 2010. The final 2010 federal tax forms were released later than normal as a result of that last minute legislation. The companies that produce tax preparation software are probably breathing much easier this year. If I were a betting man, I would say that they will not be so lucky next year.

Speaking of tax form changes, some taxpayers have probably noticed line 1a, Merchant Card and Third-party Payments, in Part I on Schedule C (Form 1040). For 2011, the IRS deferred the requirement to report gross receipts received via merchant cards (credit and debit cards) and third-party network payments on line 1a. Taxpayers are supposed to enter zero on line 1a for 2011 and report all gross receipts on line 1b, including any income reported to them on Form 1099-K. It will be interesting to see what legislative and regulatory changes will occur in this area before the 2012 federal tax returns are filed in 2013. As always, the lobbyists will be busy.

In addition to the line for merchant card and third-party payments, taxpayers may have noticed some changes to Schedule D (Form 1040) this year. In general, taxpayers reporting 2011 capital gains and losses will first report the gains and losses on the new Form 8949, Sales and Other Dispositions of Capital Assets. The totals from Form 8949 are then carried over to Schedule D. Once there, the taxpayer will be on more familiar ground.

While preparing their Form 1040, some taxpayers may notice that the Making Work Pay credit has disappeared. This credit expired and cannot be claimed on the 2011 federal individual tax return. The 2% employee payroll tax cut might reduce the sting of no longer having the Making Work Pay credit, but most taxpayers would prefer having both benefits.

How do you keep up with these changes? For those individuals with Smartphones, the IRS recently announced the availability of their updated Smartphone application, IRS2Go 2.0. This is an expanded app designed to provide taxpayers with easier access to tools and information. The new app is available for both the Apple and Android platforms. It has a new YouTube feature, news feeds, and tax transcript service. You can also check the status of your refund using the app.

Last week, there was another item of interest from the IRS. The Service issued its annual “Dirty Dozen” ranking of tax scams. There were no big surprises. Number one on their list was identity theft, and number three was return preparer fraud. The Preparer Tax Identification Number (PTIN) requirement and Registered Tax Return Preparer (RTRP) program should help reduce return preparer fraud in the future. Many articles in the print and electronic media have started to educate taxpayers about seeking qualified tax preparers and asking for their PTIN.

One last item came to my attention this morning. There is a lot of talk in Washington about corporate tax reform. There is also some talk about individual tax reform in speeches by various presidential candidates. However, most tax professionals are currently concerned with filing 2011 tax returns. By April 17, many of us will have formed our own opinions on how to best reform the tax system, but the various tax provisions that expire at the end of 2012 will be foremost in our minds. It looks like the real fun begins when the lame duck session of Congress carefully deliberates how to handle that issue after the general election in November.

Thursday, January 26, 2012

CPE and Me

I had a birthday this month. Now, I am not going to tell you how old I am, but it did remind me that, in addition to being one year older, my annual Continuing Professional Education (CPE) reporting deadline had arrived. I am licensed in a state that requires CPAs to report the number of hours of CPE completed in the twelve-month period ending on the last day of the month in which they were born. The requirement is usually stated in terms of minimum required number of hours of credit and specific requirements such as number of hours earned from technical and non-technical topics and ethics. Failure to complete the minimum hour requirement as well as the specific course requirements can result in suspension of your license to practice.

A summary of CPE reporting deadlines for the 50 states and 4 territories are as follows:
• 28 – December 31st.
• 12 – June 30th.
• 8 – Other
• 5 – Birth Month
• 1 - None

The Wisconsin state board does not require its CPAs to obtain CPE: however, most Wisconsin CPAs voluntarily take CPE in order to stay current with the ever changing accounting and tax rules and regulations.

Five states have birth month reporting periods. These are mainly the large states; California, New York, and Texas. Arizona and New Mexico have also adopted reporting based on the month you were born.

The majority of the states-(74%) have either June 30th or December 31st-as their reporting date.

Often reporting periods do not correspond to the license renewal date, so you need to be careful to complete the required number of hours of CPE within the renewal period. Also, limits on the number of hours of credit you may report for a specific type of CPE (self-study vs. instructor led or technical vs. non-technical) need to be carefully monitored so you do not run afoul of the requirements.

If you are licensed in only one state, keeping up with your CPE requirements may not be that challenging. However, if you are licensed in multiple states, it can become a daunting task. The good news is that there is help available. Thomson Reuters CE Tracking, available on Checkpoint Learning©, tracks over 70 organizations that regulate licensing and certification requirements, including all 50 states. Just follow the link for more information.

https://checkpointlearning.thomsonreuters.com//Courses/CpeTracking

Features of CE Tracking include:

• Automatic determination of compliance periods.
• Enforcement of limits/prohibitions on credits earned.
• Notification of rule updates and changes.
• Monthly e-mail reminders to keep you informed of your CE compliance status.

Check it out for yourself. It can save you time and ensure that you meet all of the continuing education requirements mandated by each of your licensing bodies.