Sunday, January 31, 2010


He said, Columbo-like.

Just so you know, I will not be responding to, or even reading, emails from non-clients regarding my blogs during the tax season – whether they be comments on posts or appropriate, or inappropriate, tax questions. If you have a question that you need answered in order to complete your tax return DON’T ASK ME.

All emails will be “inventoried” unread in a “pending” file and reviewed after April 15th.



Joy to the world - tax season’s here.
I’ll soon be flush with cash!
Let every client be organized,
and give me all I need, and give me all I need,
and give me all I need to prepare their returns!
My 39th tax season will officially begin tomorrow - the floodgates will soon be open!
As is my custom, due to the demands of the filing season I will be taking my annual “tax season hiatus” from posting to THE WANDERING TAX PRO and the NJ TAX PRACTICE BLOG and INTERNET GUIDE TO IRS SCHEDULE E. Between now and April 15th I barely have time to relieve myself let alone blog! However, in order to maintain my spot on Alltop’s Tax page I will be posting every 20 days or so. I most likely will be doing “re-runs” – unless there is breaking tax news to report.
I realize that I am abandoning you at a time when you may need me the most – but I need to make a living!
I find it a bit amusing that the period of time when TWTP gets the most “hits” is during the tax filing season when I am not posting.
My clients should visit the WHERE THE FAKAWI Page on my tax practice website to keep up-to-date on my progress during the season and to learn of any changes or additions to my tax season policies and procedures.
“Talk” to you when it is all over!
BTW – be sure to stop by tomorrow for the annual posting of my TWELVE DAYS OF TAX SEASON!

Saturday, January 30, 2010


Does anyone else find it a bit outrageous that H+R Block, as per their ads, charges $68.00 to prepare a Form 1040EZ, truly the simplest of all tax returns, and the corresponding basic state tax return? And God knows how much else for a usurious Refund Anticipation Loan (RAL)!

An H+R employee spends at most 15 minutes entering the necessary information into the computer. In this situation the “preparer” is truly a data entry clerk and not a real "tax preparer".

The 1040EZ is so EZ you don’t have to be much smarter than a 5th grader to be able to complete it.

Hey, as I have always said – Henry and his brother ain’t cheap!


This is the last BUZZ until after the end of the tax filing season!
You can continue to get daily tax tips from my column at MAINSTREET.COM.

* Did you catch Kay Bell’s “Tax Twitter Tuesday - 1.26.10” at DON’T MESS WITH TAXES? The first T3 of 2010!

* Kudos to Joe Kristan for his comments in “We're Government, We Can Do This, Don't You Try It!” at the ROTH AND COMPANY TAX UPDATE BLOG.

* Professor Nellen continues the cry “AMT Must Go” over at 2ist CENTURY TAXATION.

Clearly the individual AMT is out of control. When the AMT was broadened by the Tax Reform Act of 1986, it was not done so to reach the middle class. But the failure to adjust the exemption amounts and rate brackets for inflation have caused the AMT to just become a penalty. Also, the addition of more favorable tax deductions and credits for individuals means the AMT is more likely to kick in.

I've written about the need to repeal this tax before. I'm not the only one that has called for its repeal. The Joint Committee on Taxation, the AICPA and ABA have done the same. There should be only one minimum tax - the one we currently call the regular tax. If Congress believes that deductions and credits are allowing people to pay less than the minimum, then be more transparent about it all and just reduce or eliminate some of these numerous tax breaks that also are a source of complexity in the law

Right on, sister!

* The Professor also makes a very good point in her post “State of the Union Speech Includes Tax and Budget Deception”.

As she points out a tax credit = additional government spending. Instead of writing a check the government is netting the cost against tax collections – same “bottom line”.

* And Chad Bordeaux makes an excellent point in a BEANCOUNTER RAMBLINGS post that asks the question “Did President Obama Actually Cut Taxes?”.

I also don’t think that sending a check to someone that doesn’t pay any tax can be called a ‘tax cut’ either. How can you cut zero? There is nothing there to cut.”

A refundable credit is not a reduction in tax – it is a welfare or benefit payment!


Thursday, January 28, 2010


For those of you who missed the State of the Union Address Kelly Phillips Erb posts the text of the speech at TAX GIRL (click here).

So what did BO have to say in terms of taxes last night?

"I've proposed a fee on the biggest banks. Now, I know Wall Street isn't keen on this idea. But if these firms can afford to hand out big bonuses again, they can afford a modest fee to pay back the taxpayers who rescued them in their time of need."

Any fee will most likely be just passed along to bank customers. How about making bonuses in excess of a certain reasonable amount, or not paid out of current earnings and profits, non-deductible?

I'm also proposing a new small business tax credit -- one that will go to over one million small businesses who hire new workers or raise wages. While we're at it, let's also eliminate all capital gains taxes on small business investment, and provide a tax incentive for all large businesses and all small businesses to invest in new plants and equipment."

I have no objection to a “jobs credit”.

As for the comment “eliminate all capital gains taxes on small business investment” – this certainly raises a lot of questions. Do I understand BO correctly? Does he want to make the capital gains tax rate “0” regardless of level of income? Will this apply only to capital gains from “small business investment”? How will “small business investment” be defined? I thought BO wanted to increase the capital gains tax rate.
I certainly support lower rates for capital gains for all. As for eliminating the ta on certain capital gains - I actually have never given this idea any thought before.

To make college more affordable, this bill will finally end the unwarranted taxpayer subsidies that go to banks for student loans. Instead, let's take that money and give families a $10,000 tax credit for four years of college and increase Pell Grants. And let's tell another one million students that when they graduate, they will be required to pay only 10 percent of their income on student loans, and all of their debt will be forgiven after 20 years -- and forgiven after 10 years if they choose a career in public service, because in the United States of America, no one should go broke because they chose to go to college."

Doesn’t the American Opportunity Credit already give taxpayers a $10,000 credit for four years of college (within AGI income limitations, of course)? The maximum credit it $2,500 and it is available for four years of college. I suppose he is talking about making it permanent.

I am against any debt forgiveness for student loan borrowings. Don’t charge any interest on the debt for the first 10 years if you want – but don’t forgive the debt altogether. Although I would consider some kind of debt forgiveness or other special treatment for those who enter “public service” and stay there for a required number of years.

To help working families, we will extend our middle-class tax cuts. But at a time of record deficits, we will not continue tax cuts for oil companies, investment fund managers, and those making over $250,000 a year. We just can’t afford it.”

So it appears that BO will support extending, or making permanent, the “Bush tax cuts” for those with income (AGI?) of less than $250,001, but will not do so for those with income (AGI?) of over $250,000. I am not against extending the “Bush tax cuts” for those under $250,001, or over $250,000 for that fact. Of course I would certainly prefer a total overhaul of the tax system to simplify the mucking fess – but I expect this is not to be - at least until the economy has been stabilized.


Wednesday, January 27, 2010


Don’t forget to check out my daily tax tips column at MAINSTREET.COM.

* Also check out my NJ TAX PRACTICE BLOG post on “The IRS Answers Questions on Tax Preparer Regulation”.

* Check out the “Obama Tax Man” video over at ACCOUNTINGBLOCK.

* Russ Fox tells us in his post “Payroll Tax Companies & Registration of Tax Professionals” at TAXABLE TALK that, according to the IRS FAQ Page mentioned above, “California CTEC practitioners will have to take the new exam. It also appears that California isn’t going to be dropping the CTEC requirements, so tax practitioners who are not CPAs, EAs, or attorneys in California will have dual requirements.”

A CPA, whose initial competency test has minimal, if any, questions on 1040 preparation, does not have to take an exam in order to prepare federal income tax returns, but a tax professional licensed to prepare tax returns by the State of California, who has already taken a competency test in taxation, does. Real smart!

I must point out that I have no idea what is on the CTEC exam, but it certainly has more questions on the federal 1040 than the CPA exam.

* Speaking of the IRS FAQ Page – Joe Kristan has an interesting comment on one of the Q+As in his ROTH AND COMPANY TAX UPDATE BLOG post “Unanswered FAQ: Why Did They Hire H&R Block CEO To Write Them?” -

What is the required percentage to pass the competency test?

This has not been determined. Stay tuned to the Tax Professionals page for information on this issue.
{IRS answer}

Well above that required of Congresscritters, Treasury Secretaries and IRS Commissioners. {Joe’s response}”

* Joseph Henchman of the Tax Foundation weighs in on the subject of regulating tax professionals in the post “IRS Proposes Licensing Tax Preparers” at the TAX POLICY BLOG. One can’t argue with his bottom line -

The tax code is big, complex, and ever-changing. That is the problem, since it doesn't need be. No paid preparer knows every nook and cranny of tax law and if we truly graded people for competency, no one could pass. National Taxpayer Advocate Nina Olson, despite supporting the new regulations and optimistically assuming that they'll be minimal and one-time for each preparer, reveals that much of the complexity is due to each year's new credits, exemptions, and changing rules, and that we need tax reform.

Those pushing for more regulation and more centralization of tax preparation should instead focus their efforts on tax simplification

* Stacie Clifford Kitts gives us a rerun of a “blast from the past” with her post “Seven Things Your Accountant Should Have Told You – a Good Post From the Past” at STACIE'S MORE TAX TIPS.

Seven good “things” – especially the last.

* Kay Bell reports on a really bad idea, for all parties involved (both IRS and taxpayers alike), in her post “Let the IRS Do Your Taxes for You”.

It sounds like a variation on BO’s ridiculous proposal for a “post card” tax return (check out my post “A Very Bad Idea”), which apparently is still floating around.

* And Kay gives good advice to those who choose to split the direct deposit of their federal refund to more than one account via Form 8888 in “Triple-Check Multiple Deposit Directions” at her EYE ON THE IRS blog at

* TAX GIRL Kelly Phillips Erb has an interesting take on the recent action of Congress regarding donations to hurricane relief for Haiti in “Congress Wants You to Give to Haiti. But Just Haiti” that is certainly worth reading. To be honest, she makes a very good point.


Monday, January 25, 2010


As the tax filing season is fast approaching (I consider February 1st to be the beginning), and recent posts have discussed choosing a tax professional, I just want to make it perfectly clear that, as I said in my annual January mailing to clients, READ MY LIPS – NO NEW CLIENTS!

I do not write THE WANDERING TAX PRO in the hopes of soliciting new 1040 clients.

While I will write a column or articles for your newsletter, magazine or website, for a fee of course, I will not prepare your 1040 or 1040A – or your 706, 990, 1041, 1065, 1120, or 1120-S for that matter.

When I comment on the tax preparation industry here at TWTP I do it to present the truth as I see it based on 38 years of experience, and dispel common myths and misconceptions to help you to be able to make a proper and educated choice when seeking a professional to prepare your income tax returns. I also feel the need to defend my fellow qualified and competent “unenrolled” preparers from outrageous statements made by offending bloggers.

I obviously do not believe that price should be the only consideration when choosing a tax preparer – just as it should not be the only consideration when choosing just about anything. Although in today’s economy price is undoubtedly a serious consideration.

What you should consider when making your choice is the relative value. What are you getting for the price you pay and just what are you paying for anyway?

Let me tell a story about John Q and Mary Public and their lawn.

John and Mary have a large front lawn. Being a busy man, John Q does not want to take the time to mow the lawn himself. Besides, he hates the task. So John and Mary must hire someone to mow their lawn.

Tom mows lawns. He does not plant trees or bushes or anything else. He just mows lawns. He does it by himself with his own equipment. He does not have any helpers or assistants. He has been mowing lawns for a long time now, and does an excellent job. He pays attention to details, like edging and spotting, and when he leaves the lawn is picture perfect, as has been attested by his many clients. He does not advertise much, relying on “word of mouth” from satisfied customers. While Tom may recommend specific products to his clients, like grass seed or weed killer and the like, he does not sell these items himself. He also provides advice on lawn maintenance. Henry will charge $50.00 to mow John and Mary’s lawn.

Arthur is a landscape architect. He has the appropriate licenses and credentials needed to “practice” as a landscape architect. He designs yards and landscapes, plants trees, flowers, and bushes, and maintains elaborate landscapes. He also provides lawn mowing services, although he usually has one of his many helpers do the actual mowing. He has a large office and warehouse where he keeps all his equipment and supplies. He advertises all over town in all kinds of media. Because of the large potential for liability resulting from his landscape design services he has expensive liability insurance. Arthur’s company does a competent and serviceable job mowing lawns, although it does not pay as much close attention to detail as Tom does. Arthur will charge $100.00 to mow John and Mary’s lawn.

Henry and his brother Robert have a chain business that offers lawn mowing services. They are more interested in quantity than quality. They hire high school and college kids and, it has been rumored, illegal aliens to mow the lawns, with the emphasis on getting it done quickly. Henry and Robert advertise all over creation. They also instruct their employees to push Henry’s Fine Grass Seed and Robert’s Great Weed Killer, and various other probably unnecessary but certainly expensive products on their lawn mowing clients, as they make just as much money, if not more, selling these products then they do mowing lawns. The work done by Henry’s mowers is erratic and inconsistent, with minimum attention to detail. Henry and Robert will charge $84.75 to mow John and Mary’s lawn.

So who do you think John and Mary should choose to mow their lawn?


Saturday, January 23, 2010


Don’t forget to check out my daily tax tips column at MAINSTREET.COM.

* Joe Kristan provides another example of why the very first tax tip in my series of columns for is perhaps the best tax advice anyone can ever give you in his post “Buy Insurance From an Insurance Guy; Buy Your Tax Advice From a Tax Advisor” at the ROTH AND COMPANY TAX UPDATE BLOG.

* TAX GIRL Kelly Phillips Erb has been running trivia contests all week. I like this question

Assuming that you read out loud at the same speed as you count (on average), how many days would it take to read the entire Tax Code out loud without stopping?

The answer - 43 days!

* The weekly NATP email newsletter gives us the word on claiming the First Time Homebuyer Credit on the 2009 Form 1040. Wisely, for a change, Congress required documentation to be included with the return to show that a purchase actually took place.

All eligible homebuyers must include with their 2009 tax returns one of the following documents in order to receive the credit:

• A copy of the settlement statement showing all parties' names and signatures, property address, sales price, and date of purchase. Normally, this is the properly executed Form HUD-1, Settlement Statement.

• For mobile home purchasers who are unable to get a settlement statement, a copy of the executed retail sales contract showing all parties' names and signatures, property address, purchase price, and date of purchase.

• For a newly constructed home where a settlement statement is not available, a copy of the certificate of occupancy showing the owner’s name, property address, and date of the certificate.

In addition, the new law allows a long-time resident of the same main home to claim the homebuyer credit if they purchase a new principal residence. To qualify, eligible taxpayers must show that they lived in their old homes for a five-consecutive-year period during the eight-year period ending on the purchase date of the new home. The IRS has stepped up compliance checks involving the homebuyer credit, and it encouraged homebuyers claiming this part of the credit to avoid refund delays by attaching documentation covering the five-consecutive-year period:

• Form 1098, Mortgage Interest Statement, or substitute mortgage interest statements,
• Property tax records, or
• Homeowner’s insurance records.

Returns claiming the first-time homebuyer credit cannot be e-filed

* The newsletter also reports that, as expected -

Recipients of social security benefits, railroad retirement benefits, or veterans’ benefits were eligible to receive a one-time Economic Recovery payment of $250 in 2009. The receipt of this payment will not be reported on the respective information forms (SSA-1099, RRB-1099, etc.) received by taxpayers. The IRS is not able to assist taxpayers with determining whether they received the payment or the amount. If this information is needed, the taxpayer must contact the agency that made the payment to them.”

So we tax pros must rely on our clients’ memories. Oi vey!


Friday, January 22, 2010


I realize that I have been “scooped” by my tax blogger brethren (and sistern) on this topic.

As the Washington Post has reported -

Taxpayers will be able to write off charitable donations to Haiti earthquake relief efforts when they file their 2009 taxes this spring, under a bill that received final congressional approval Thursday.

The Senate passed the bill on a voice vote Thursday, sending it to President Barack Obama for his expected signature.

The bill was passed by the House on a voice vote Wednesday, meaning no member of Congress opposed it

Taxpayers will have the option of deducting donations of cash or property to charities providing relief to the victims of the earthquake in Haiti made between January 12, the date of the earthquake, and February 28th on either their 2009 or 2010 income tax returns.
Obviously you should claim the deduction on the return that provides the greatest tax benefit – although it is too early in the year to really be able to make that decision. So if there is doubt I would suggest claiming the deduction on the 2009 return.

The bill (HR 4462) states that a phone bill with the date, name of charity, and amount of the donation will be acceptable as appropriate documentation of a deduction.

It is very important to remember that you get no tax benefit for making a charitable contribution to Haiti earthquake relief, or to any other qualified charitable organization, unless you can itemize on Schedule A. Nothing in the 2-page bill says that this deduction is allowed if you do not itemize.

And, of course, you must give the cash or property to a qualified charitable organization, like the Red Cross. You will get no deduction for sending a check to a specific individual or family in Haiti.

Two items of concern.

(1) If you do give be sure that it is to a reputable charitable organization – like, as I said, the Red Cross or the organization that is running tonight’s multi-channel telethon. As is usually the case in such a situation, there will be a lot of scams springing up.

(2) From a tax administration point of view – I am concerned that taxpayers who can itemize will, either on purpose or inadvertently, claim the same deduction on both 2009 and 2010 returns.


I was surprised at the lack of comments to my POPPYCOCK post. I did, however, hear from fellow tax professional, the ol’ Mountain Biking Tax Pro himself, Tom K -

Sorry, but I have all that stuff, including 'errors & omissions insurance' through CNA Surety.

2 main reasons I see that MOST CPAs and Tax Attorneys charge higher. One is the same reason the green block people, the Statue company, and that other one do.

#1 is store front rentals, I can drive you around my neck of the woods and show you a dozen or more CPAs/tax attorneys who have 1200/2000+ sq. ft. offices in high priced office buildings/strip malls, all of which I know personally rent for $2 to 3 thousand a month, if not more.

The other reason is 'prestige/ego'. Which I don't really blame the individuals themselves as much as I blame the industry. Once you get them 'letters' behind your name, there is a certain amount of 'prestige' that you have to front (staff, high priced office, restaurant lunches, etc.) in order to fit in with the other high-class peers...

I do believe that having initials after one’s name causes such a person to charge twice as much for half the service.

As Tom has proven – when the offending blogger “assumed” he only made an ass of himself!

Tom also commented on my mention of Mary O’Keeffe’s post on “Who Should Be Tested” -

I saw you posted on Mary’s post about who she thinks should be tested.

I have said that from the get go in several comments to you in mid '09 and on a blog I half started back in June/July of '09
{click here for Tom’s archieved blog post – rdf}.

Ain't goin' happen though, I know it, you know it, Mary knows it. Nice thoughts but that would be the last thing IRS would ever require...

Keep up the good work

Thanks, Tom, for being a regular visitor and a regular commentor.

Before I go I wanted to quote a comment not directed to me, but to TAX GIRL Kelly Phillips Erb in response to her “Fix the Tax Code Friday” question on the registration of tax preparers (the highlight is gleefully mine) -

My problem with this is who is going to be required to do this. If you are an accountant (CPA) you’re exempt from this requirement, as are many others along that line. As a tax preparer some of the worst returns I’ve had to amend for people have come from these CPA’s. They do not know tax laws - they understand accounting and bookkeeping but that doesn’t make them knowledgeable about taxes.

As a preparer I believe something like this is needed, but I think that ALL people who do taxes should be required to be tested, not just preparers. In many firms one person prepares the taxes but since they aren’t signing them, the CPA is, they will not be required to pass a test, so a large group will still not be required to show any knowledge of tax law or current tax rules

Right on!


Thursday, January 21, 2010


So you know not to assume that just because a person has the initials CPA after his/her name that he/she knows anything about preparing 1040s, and that Henry and Richard or other fast food commercial chains charge a low or even reasonable fee.

Here are some other mistakes to avoid when choosing a tax preparer –

* Do not use a tax preparer who guarantees you a bigger refund, or who guarantees a refund period. No tax preparer anywhere can guarantee you a refund if your individual facts and circumstances – your actual numbers – do not warrant a refund unless he/she makes up deductions or exemptions or purposely does not report all your income. Either way that is tax fraud! The only claim or guarantee any legitimate tax preparer can make is that by using his/her services you will pay the absolute least amount of federal and state income taxes possible for your individual situation.

* Do not choose a preparer who charges as his/her fee a percentage of your refund or of the amount of tax he/she has saved you. Chances are the person will illegally inflate your refund or savings to increase his/her fee. The fee for preparing a tax return should be based solely on the amount of time involved and/or the number of forms and schedules required.

* Do not choose a tax preparer solely for the reason that he/she tells you that you can walk out of the office with a check in your hand. That person or firm is not selling competent and accurate tax preparation – they are selling usurious Refund Anticipation Loans, which you should avoid like the plague. You want to use a tax preparer that is experienced and knowledgeable in tax law and not a loan shark.

* Do not choose a tax preparer who will not sign your finished returns. All tax preparers are required by the IRS to sign all tax returns which they have been paid to prepare. If a person prepares your return and refuses to sign it you should refuse to pay him/her and take your “stuff” elsewhere.

* Perhaps the biggest mistake, do not choose a “box” as your tax preparer. I cannot stress this strongly enough – no tax preparation software is a substitute for knowledge of the Tax Code. And no tax preparation software is a substitute for the services of a trained tax professional! As with any software program the rule is “garbage in – garbage out”.

When the IRS comes after you for errors on your tax return you can’t blame it on the software, unless you have been nominated for a top level position in the federal administration. The US Tax Court has on two separate occasions rejected the “Turbo-Tax Defense”.

The IRS estimates that do-it-yourself software users spend an average of 10 to over 20 hours longer on a return than if they used a paid tax preparer, depending on complexity of the return.

The bottom line is – if you don’t know what you are doing do not rely on a tax preparation software package to make up for your lack of tax knowledge. Using a real live tax professional will save you time, aggravation and money.

* And one final item before I end. As I say in the cover letter that accompanies all of my finished returns -

Please examine these returns carefully to be sure all items of income and deductions have been accounted for properly. You are responsible for all the information reported on the returns. If you find anything that is not in order, or that you do not understand, contact {your tax preparer} immediately. It is extremely important that you verify the accuracy of all Social Security numbers on the returns before mailing.”


Wednesday, January 20, 2010


No BUZZ to speak of for this installment – so I go with A LITTLE THIS-A AND A LITTLE THAT-A instead -

+ Don’t forget to check out my daily tax tips columns at MAINSTREET.COM.

+ Mary O’Keeffe gives us her take on the IRS Return Preparer Review in “Who Should Be Tested On Tax Law” at BED BUFFALOES IN YOUR TAX CODE.

Mary would have every person involved in the preparation of tax returns and every person involved in the creation and administration of tax law tested, including –

ALL employees of the IRS from the Commissioner on down

The Secretary of the Treasury and any Treasury Department employees whose jobs relate in any way to making tax policy

Anyone on the White House staff whose job relates to tax policy in a significant way” and

All members of Congress who serve on committees that write tax laws, and their staffs

Because Mary, as a volunteer with the IRS VITA program, must pass an annual exam she feels that all those involved with taxes should be tested annually. As she mentions in her post, I do believe it would be “impractical and unworkable to require annual testing of practitioners”. Why the IRS is going to take 3 years to administer an initial competency test to just the currently “unenrolled” preparers. Besides, annual testing would place an undue burden on members of the tax profession. No other profession – MD, CPA, JD, Architect, etc - requires annual testing to maintain a “license”.

However you can’t fault Mary’s bottom line -

Maybe if all the government policymakers have to undergo the annual testing, they'll decide to create a simpler tax code that doesn't require large numbers of ‘rocket science’ paid tax practitioners.”

+ Ask an ye shall receive.
I got another email comment from Enrolled Agent Elizabeth Ruh, who apparently works for Jackson Hewitt (to be honest, I could never understand why an EA would work for one of the fast food preparation chains), with two requests -

I would be curious to know how other tax professionals keep on top of the ever changing tax laws. (I myself attend the IRS forums and read a lot of IRS publications!). I am also curious, especially from those who think CPA’s and Tax Attorney’s should be subject to the regulating, how they got started and learned the highly unusual world of taxes? (I have several mentors who started me on this journey and continue to help me grow).”

I will provide my answers to her two questions – and then open up the “floor” for responses from other tax pros, which I will publish here in a future post.

(1) Over the years I have attended tax seminars from many different companies and organizations. In terms of cost, content, location and presentation I believe the best source of continuing professional education for tax preparers is the
National Association of Tax Professionals. I have been a member now for over 20 years.

NATP offers year-end tax updates in various locations in all of the 50 states, mid-year and year-end special topics presentations at various key locations, and its annual conference with three days of CPE. It also offers a special “
basic training” course for beginners, an annual fall Technology and Office Productivity Conference, this year in Atlantic City, “webinars”, and self-study.

NATP provides members with a weekly email tax newsletter and monthly and quarterly print publications (I am a frequent contributor to the quarterly journal). It also has an excellent research department that is available to answer member questions via phone or email.

Members of NATP are automatically members of the resident state chapter, if one exists for your state. The NJ chapter of NATP also offers good seminars on federal and state tax topics.

NATP offers an EA exam review course and, I expect, will be offering a review course for the initial competency exam proposed by the IRS in its Return Preparer Review.

I highly recommend membership in NATP. If you do decide to join please mention my name as the person by whom you were referred and I will get a free gift!

Another good source of continuing professional education is the California Society of Enrolled Agents, who each year in May and June offers a “
Super Seminar” (3 days of great CPE) in Las Vegas and Reno.

As a tax professional, tax blogger, and tax writer I visit a variety of tax-related blogs on a daily basis (except during the tax season) and subscribe to the and CCH daily tax headline newsletters. These sources provide lots of good tax information as well as leads to other resources. You should visit the sites listed in my “blogroll” in the right hand margin (scroll down to end).

(2) How did I get started in “the business”? Let me quote from an earlier post -

My first encounter with income taxes came in February of 1972, when I was in my second semester as a freshman at local Jesuit institution St Peter’s College (I am not Catholic – it had a good rep for business). I had taken the first half of Accounting 101, but had not taken any tax classes.

My uncle’s tax professional, James P Gill, would hire students from St Peter’s College during the tax season as apprentice tax preparers. During his annual visit, always on Lincoln’s Birthday (then an actual legal federal holiday), my uncle happened to mention to Jim that I had taken my first accounting course and that I was helping him with the books for the non-profit organization for which he worked. Jim told my uncle to send me in to see him – and the rest is history!

For the rest of the story go to my post “
What About Bob?”.

So there you have my answers to Elizabeth’s questions. I would love to hear the answers of my tax blogging colleagues and other tax professionals. Send me an email at The responses will be complied in a post to appear at the end of next week.


Tuesday, January 19, 2010


A multi-initialed blogger (who shall remain nameless so as not to provide undue attention) responds to my annual “Don’t Assume” post by suggesting the reason why CPAs and attorneys charge more than their “unenrolled” brethren for preparing 1040s –

Here are some overhead items that most CPA and tax attorney preparers have that unenrolled preparers generally do not have:

• Sophisticated tax preparation software, updated for the latest tax law changes
• A quality tax law library either on CD, through an Internet service, or in hard copy
• Malpractice insurance (if your tax preparer makes a mistake, you can recover the costs of that mistake through an insurance claim)
• Fellow tax preparer employees to review all tax returns before they are filed (lack of secondary review is a major contributor to the filing of incorrect returns)
• Extensive continuing tax and professional education

My answer to this nonsense is, of course, “poppycock”. Actually I had another word in mind, but want to remain civil.

I know many, many non-CPA and non-attorney tax preparers, both EAs and the “unenrolled”, who have, if not all, most of the above items. The most important of these items is, of course, the last – extensive continuing tax and professional education.

Just a note – my experience with the then “Big 8” accounting firm, as discussed in my post, clearly indicates that item #4 does not always work. As I pointed out, a simple error on a state tax return was missed by a multitude of CPAs.


{Here is a great guest post from Patrick, who writes about personal finance and career topics at Cash Money Life and military money topics at Military Finance Network. I wrote a series of guest posts on Self-Employed Retirement Plans for Patrick at CASH MONEY LIFE a while back. Links to these posts appear in the right hand margin - scroll down a bit. Thanks, Patrick! – rdf}

A couple years ago I started my own business. The first few months were underwhelming to say the least. Actually, if I were to put an hourly wage on my labor the entire first year it probably would have been on par with someone in a third world country. I probably would have been able to survive fairly well for a year in many third world countries - or possibly afford one month's rent for a one bedroom apartment in a major city like New York. As time went on I learned more about my business and I began to earn more money.

The second year I earned substantially more than my first year and I was faced with several issues I hadn't previously considered - such as forming an LLC for my company, obtaining an EIN, opening a
self-employed retirement account, opening business savings and checking accounts, paying estimated taxes, depreciating company assets, and more. But by the time tax season rolled around I was drowning in a sea of paperwork.

Thankfully, I kept all my business and personal paperwork separate. I filed each pay stub or receipt from a business expense in two large manila envelopes marked "income" and "expenses." I also had an envelope for my official business papers, including my Articles of Organization for my LLC, my
Solo 401k paperwork, etc. Separation and organization are paramount!

I did plenty of research before it was time to file my taxes, but all the new information and the more complicated tax situation made me want to get a second opinion. I wasn't sure
if I needed an accountant or not. Honestly, I was fairly confident I could file my return and be able to withstand an audit. But I also wanted to make sure I wasn't leaving money on the table by paying more than I should or making any mistakes that could bring the IRS knocking at my door.

So I asked around and found a couple leads, then I interviewed a couple accounting firms. Lucky for me, the best mix of small business experience, specializations, and cost was also the firm that was closest to my home. But this is one case when I wouldn't mind driving across town.

I ended up hiring that firm and I dropped off my taxes (at this point I had already completed them, but I wanted a second opinion). It turns out my calculations were spot on. But I don't consider it wasted money - in fact, I was more than happy to pay. You see, they gave me peace of mind. I knew the job was done correctly, and I now had someone to back me up if I were to ever get audited. I also had several discussions with my accountant about the best way to handle my taxes in the coming year and we made a change to my filing status and a few other fun things that should save me money this year, and hopefully in future years. And that is why I wanted to find an accountant in the first place - to give me peace of mind, and save me money in the long run.

This year I will drop off copies of my papers once I receive all my 1099s and I will rest knowing that the person doing my taxes will not only be doing them more efficiently that I ever could, but is using a plan that we worked on together. The point isn't to outsource everything and never think about it again - far from it. I still go over everything and make sure I understand each line on my taxes. But I also want a professional opinion and I want to know the job is done right. Being able to call a person whenever I need to discuss a tax issue is much better than doing an online search or clicking buttons on a desktop software program.


Monday, January 18, 2010


It is that time of year again for one of my favorite posts – the one that tells you not to make assumptions when looking for someone to prepare your tax return.

Do you remember the episode of the ODD COUPLE television series where Felix explains to Oscar what happens when you assume (you make an ass out of u and me)? Making false assumptions when choosing a tax preparer can be costly!

1) Don't assume that because a person has the initials "CPA" after his name he is an expert when it comes to federal and state income taxes!

The CPA designation means that a person took a very difficult test at the beginning of his career, possibly many, many years ago, only a very small part of which dealt with federal income tax, and usually with “entity” tax issues (corporate, partnership, estates and trusts) and not those dealing with 1040 issues. It is certainly no guarantee that he is current on federal and state individual income tax law.

Whenever I get a new client I ask to see his or her last three (3) years’ tax returns, to make sure I do not miss any carryforwards and, more important, to see if there are any errors that I could correct on an amended return. In my 38 years of preparing tax returns I have found more mistakes on 1040s prepared by CPAs than by any other class of preparer, including the taxpayer himself.

Some 30 years ago I was a "para-professional" in the Small Business Services Department of one of the then "Big Eight" CPA firms. While reviewing the prior year's federal and state tax returns of a client whose current returns I was preparing I found a very obvious error on the state tax return that caused the client to pay more tax than necessary. Under the firm's policy, the return, which had been originally prepared by a CPA, was reviewed by his "manager" (also a CPA), and signed-off on by the head of the department (a CPA) and a member of the Tax Department (a CPA). Not one of these CPAs picked up the obvious error!

A student in one of the tax planning/preparation courses I taught at local suburban adult schools years ago asked me what was the difference between a tax return prepared by a CPA and one prepared by me (I am obviously not a CPA). My answer was "at least $100.00" (that number needs to be seriously adjusted for inflation!).

There has been some concern in the past about the practice of CPA firms “outsourcing” the preparation of 1040s to India. This should not be a cause for concern. Between you and me - you are much more likely to have your 1040 prepared properly and accurately by a contracted preparer in India than by a CPA here in the United States!

Many of my fellow tax bloggers, who happen to be CPAs, will tell you that they agree with what I say in this post. I will be glad to provide online references. Recently, in discussing the IRS decision to exempt CPAs and attorneys from testing and continuing education requirements in its proposal for regulating the tax preparation industry, a CPA tax blogger has said –

Being a licensed CPA or attorney is no guarantee of tax expertise. The licensing examinations do not emphasize tax law. Plus, neither is required to take any tax related continuing education to maintain their licenses. Truth is many CPAs and attorneys have little tax experience. I should know. I prepare tax returns for them.”

He ends his post with - “Virtually every new client I get is an amended tax return waiting to happen. Guess who prepared the returns I’m amending…mostly CPAs!

I have said it time and again – just because a person has the initials CPA after his/her name does not mean that he/she knows his/her arse from a hole in the ground when it comes to preparing 1040s.

The only initials that have any meaning when it comes to tax preparation are "EA" - Enrolled Agent (I am also not an “EA”). The name is misleading. An EA is not an agent of the Internal Revenue Service, but a private tax professional who is "enrolled" to act as a taxpayer's "agent" in proceedings with the IRS and in tax court. To become an Enrolled Agent one must pass a difficult test that is 100% federal tax law. In order to maintain their enrolled status, EAs must have a mandatory number of continuing education credits in taxation each year. You can find an EA in your area at the National Association of Enrolled Agents website.

2) Don't assume that H+R Block will charge a low, or even reasonable, fee for preparing your tax return!

When my mentor and I got a hold of the H+R Block fee schedule back in the late 1980s we were in complete shock. Henry and Richard ain't cheap! In my opinion they are very expensive. They charge fancy restaurant prices for fast food service! Plus they will attempt to squeeze even more money out of you by trying to push you into a usurious “Refund Anticipation Loan” or to make your IRA contribution to a Block-sponsored high-fee, low-yield investment that is practically guaranteed to lose money.

While, like anything else, the market affects the price of tax preparation, the major factor affecting the fees charged is overhead. Let’s look at the overhead of these “fast food” chains.

Because the storefronts where these chains are located are usually in high traffic commercial areas, and often shopping malls, the rent is generally very high. And an important factor – H+R and Liberty and Jackson Hewitt storefronts are only open during the tax filing season, yet they must pay rent on the property for the entire year.

These chains have excessive advertising budgets during the season, spending millions of dollars on constant tv and radio spots as well as print advertising telling you not that they competently prepare accurate tax returns but simply to come into their office and walk out with a check. Hey, doesn’t H+R advertise during the Super Bowl.

H+R Block et al are corporations, and have highly compensated upper level corporate officers and employees with generous employee benefits. A while back the Associated Press reported that “H&R Block Inc. CEO Russell Smyth received compensation valued at $5.3 million in fiscal 2009, the year he took over leadership of the nation's largest tax preparer”.

And, most notable of all, Henry + Richard, Jackson Hewitt and Liberty need millions of dollars for legal fees and the settlement payments for the many, many lawsuits for deceptive advertising and other unethical business practices, most of which result from their usurious Refund Anticipation Loan offerings.

With commercial preparation chains I expect that the actual cost of preparing the return - salaries paid to the seasonal preparers and the training of these preparers - is one of the least expensive items in the budget.

Returns prepared by the employees of Henry and Richard are second to CPAs in terms of errors I have discovered on 1040s over the years. My mentor always said that he wished H+R Block would move next door to our office - we would make a fortune fixing their mistakes!

A few years ago the Government Accountability Office (GAO) conducted a study which 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, including H+R Block, in a metropolitan area. In only 2 instances was the correct refund calculated, but all 19 returns contained errors.

Some of the more serious errors included –

• not reporting self-employment income in 10 of the 19 cases,
• claiming an Earned Income Tax Credit on an ineligible child in 5 of the 10 applicable cases,
• not claiming the education benefit (credit or deduction) that resulted in the least tax in 3 of the 9 applicable cases, and
• not claiming all available itemized deductions, or not itemizing at all, in 7 out of the 9 applicable cases.

I was told by the GAO that not one of the 19 preparers in the study had asked to see the undercover taxpayer’s prior year’s return!

The GAO agents also discovered unethical sales practices related to Refund Anticipation Loans (RALs). The annualized interest rate for the RALs offered to the “taxpayers” ranged from 380% to 470%. Henry and Richard have been sued repeatedly throughout the US because of these RALs, and have paid millions of dollars in settlements (probably why they are so expensive – they need to cover their legal and settlement costs).

Other undercover operations, by TIGTA, local tax agencies, and consumer protection organizations, have found similar results. Check out an earlier post on an operation by consumer agencies (click here).

When looking for a tax professional, as with any other professional, it is best to get a referral from a trusted friend or relative.

To be perfectly fair, over the years I have come across some CPAs who actually knew their “stuff” when it came to income taxes, and even some who charged reasonable fees. But this is not a ”given”. And I am sure that there are probably some competent, ethical and professional H+R Block preparers out there somewhere.

While it may actually be possible that the best tax preparer, at the best price, for your particular situation is either a CPA or an H+R Block employee, this is only because of the education, experience, ability, temperament, and other factors that are specific to that individual preparer.

I look forward to your comments!


Saturday, January 16, 2010


Have you checked out my column of daily tax tips at MARKETSTREET.COM yet?

* I begin this installment of the BUZZ by imploring you to follow the advice of OUR TAXING TIME’S Trish McIntire and “Be Nice to Your Tax Preparer”.

* A new tax blog written by practicing CPA Neil Johnson of Chicago – THE TAX DUDE SPEAKS – starts out with a great post of “Commentary on the IRS Announced Plans to Regulate ALL Tax Return Preparers”.

Neil tells us “As a practicing CPA, I have a real big issue with exempting CPAs and attorneys from ALL of the requirements placed on 'unenrolled preparers'”. He goes on to explain why -

Being a licensed CPA or attorney is no guarantee of tax expertise. The licensing examinations do not emphasize tax law. Plus, neither is required to take any tax related continuing education to maintain their licenses. Truth is many CPAs and attorneys have little tax experience. I should know. I prepare tax returns for them. Frankly, any CPA or attorney in tax practice and not willing to take the IRS competency test should be ashamed of themselves.”

Thanks to Neil for “telling it like it is”! This continues with his bottom line –

Virtually every new client I get is an amended tax return waiting to happen. Guess who prepared the returns I’m amending…mostly CPAs!

* Bob Cusack tells us “IRS Commissioner Doesn't File His Own Taxes” over at THE HILL’s Blog Briefing Room.

According to Shulman – "I've used {a tax preparer} for years. I find it convenient. I find the tax code complex so I use a preparer."

You can be sure he doesn’t go to H+R Block. And, hey, at least he knows enough not to try it himself with Turbo Tax like his boss.

* I report the dates and locations of the “2010 IRS Nationwide Tax Forums” at the NJ TAX PRACTICE BLOG.

* Oi vey! TAX PROF Paul Caron tells us that “Rep. Rangel ‘Unsure’ if Congress Will Retroactively Reinstate Estate Tax”. My main concern about reinstating the Estate Tax is with the “stepped-up basis” rules.

* Joe Kristan, of the ROTH AND COMPANY TAX UPDATE BLOG, goes above and beyond the duty of a tax consultant and “tells it like it is” to a taxpayer posing a question about claiming her live-in boyfriend as a deposit in “Some Problems Aren't Really Tax Problems”.

Where can I find a girlfriend like Kristen?

* While 2010 has just begun, and most people are starting to think about their 2009 tax return, Kay Bell looks ahead to 2011, when all Dubya’s tax cuts suddenly disappear, and wonders “What Your Tax Rates Might Look Like” at DON’T MESS WITH TAXES. She also considers what else may happen in 2011.


Friday, January 15, 2010


Looks like I published my comments post too soon. More comments have come in this morning.

Here is one from an Enrolled Agent about the IRS Return Preparer Review -


I’m a recent follower of your blog and have been enjoying it. I just wanted to throw out there that I think the Tax Preparer Review process that is being initiated by the IRS is much needed and welcomed! I worked hard to achieve my Enrolled Agent status and am proud of it. Nothing upsets me more than having to help my clients clean up messes from other preparers who obviously had no business preparing that return.

This will change my particular portion of the tax world immensely and I welcome it.

Thanks for your insights!


Thanks for the comment, Elizabeth. I wonder how many messes you had to clean up from other preparers were caused by CPAs?

Ask and ye shall receive! Elizabeth provided an answer (highlights are mine) –

I have had to clean up several from CPA’s. We do have lots of good CPA’s in our town but just as many not so good ones. I clean up a lot of returns that people have decided to prepare for themselves. That is probably the majority of mistake returns I see. CPA’s are probably next. Then the H&R Block’s and Liberty returns and other Jackson Hewitt returns.”


I also received an email concerning the New York Department of Taxation and Finance from a colleague in NYC who tells me “This came to me indirectly from a reliable, source” –

As we gear up for the opening of e-file, please be aware that there may be delays for some taxpayers with their NYS refunds.

Refunds for wage earners will be held until all their employers have filed their NYS-45 year end wage report. They are not sending refunds to them until they are able to verify their wages and withholding. If you have a taxpayer with several w-2s, this could take time for them to match all w-2 info on their return

I had previously reported that New York State is already going to delay the processing of all returns that do not request direct deposit for refunds. And now this!

Thursday, January 14, 2010


I just found out that my new column at THE STREET began yesterday!

It is a column of “Tax Tips” that will run every week day from now through the end of the tax filing season.

The first two columns are “Who Should You Listen To” and “Finances Come First”.

You can check out each day’s entry by going to THE STREET home page and checking out the “Main Street News” index for “Tax Tips”.

So tell all your friends. And if you like what you read please leave a comment.


I have been using as my main email address for just about as long as I have been using the internet. For the most part it functioned satisfactorily, and I was pleased with it.

A few months ago decided to “upgrade” to become “new and improved”. What it did was become a GDMFPOS (I am sure that you can figure out the initials).

The system is totally unusable – it runs slow as molasses. It takes me a half-hour to do what should be done in less than 2 minutes!

The “new and improved” is a bigger failure than the tenure of NJ Governor Corzine and Rosie O’Donnell’s miserable attempt at a prime time variety show combined – and that is saying a lot.

You would think that Congress had a hand in the “new and improved” – as it is so FU-ed!

Needless to say I will be taking my business elsewhere ASAP. For now I am using as my main address.

My advice to you is to avoid like the plague. It is a total POS.

Thank you for allowing me to rant. This is cheaper than throwing my computer monitor out the window or smashing the wall with my hand.


Here is a comment I received from a fellow tax professional regarding my post on the IRS Return Preparer Review (Part I and Part II) -

"Hi Robert,

I strongly feel that AGAIN - Tax attorneys and CPAs were treated as being they know all, because of the ill conceived idea of the public and it looks likes the IRS also now, that they know taxes, because they have through the years built up that false reputation. Sadly I don't think it will ever change...

So do we, us lonely little know nothing tax preparers get any initials now to use, if we complete the 3 steps? LOL

As for the other parts - I am already registered and have my PTIN # - renewing it every 3 years will just mean a small hassle and probably have to pay $75 to IRS for it now instead of being free.

As for testing, I'm glad they gave 3 years to complete, but I was a little disappointed in no grandfathering for older preparers.

Take care, Tom

It seems that great minds think alike!

I am disappointed that I did not hear from other tax professionals on the issue.

This reader had a comment/question about my “ROTH IRA Conversion Trap” post -

"Agree that no one was focusing on spreading IRA basis. Is anyone focusing on NJ tax implications? What similar complexity faces NJ residents that paid taxes on their SEP-IRA or similar contributions, but did not in the years before they moved to NJ and, for example, lived in NY where as with Federal taxes, the SEP-IRA contributions were not taxed? I'll bet NJ has not even thought about this.

A. Katz"

According to the instructions for the 2009 NJ-1040 –

If you converted an existing IRA to a roll-over Roth IRA during tax year 2009, any amount from the existing IRA that would be taxable if withdrawn must be included in your gross income on Line 19.”

I assume it will be the same for 2010 conversions. So for NJ tax purposes one would need to look at the source IRA and determine its NJ state “taxability”.

If the IRA was funded by taxpayer contributions then only the earnings would be taxable. If it was funded by employee contributions or was rolled over from a pension plan then the entire amount could be taxable.

The NJ instruction book has a worksheet for determining the taxable portion of an IRA withdrawal. Note that for NJ purposes – “For multiple IRAs, the taxable portion may be determined by using a separate worksheet for each IRA, or all IRAs can be combined on one worksheet”.

I do not think that prior residence in another state would make a difference. While I do not have the time to research the issue, I would expect that all contributions would be treated as if they were made as a NJ resident. Does anyone disagree?


Wednesday, January 13, 2010


* I begin this BUZZ with a must read from Mary O’Keeffe at BED BUFFALOES IN YOUR TAX CODE – “Dear Congress and Chairman Rangel in Particular”.

* Mary also tells us, in another post, that “The Bed Buffaloes in Our Tax Code Have More Than Doubled in Less Than a Decade!”.

Professor Graetz cited a figure of 1.4 million words in the IRC tax code in May 2000, based on a Joint Committee Taxation report released in 2001.

In preparing a report to Congress she delivered in January 2009, National Taxpayer Advocate Nina Olson estimated the number of words in the IRC tax code had grown to 3.7 million.

That's far more than a doubling in less than a decade

* Michael Rozbruch of the TAX RESOLUTION UNIVERSITY blog has some good advice for business taxpayers that also applies to individuals in “Avoid IRS Penalties in 2010 By Keeping Good Record of Business Expenses”.

Avoid IRS penalties by making sure that your information is accurate and truthful on your tax returns. Always keep a careful record of your business expenses so that you can back up your tax return if the IRS requests evidence.”

* I just got an email from the producers of the documentary film “An Inconvenient Tax”, which, I believe, features an appearance by fellow tax blogger TAX GIRL Kelly Phillips Erb.

An Inconvenient Tax” will be premiering at colleges, universities, through various organizations and at select theaters on Tax Day - April 15th, 2010. Visit the film's website for show times, venues and ticket information.

In addition, if you want to encourage a local theater or know a group or organization that would be interested in hosting a screening, please direct them to the screening request page

* New Jersey taxpayers and tax pros may want to check out my discussion of the recent NJ-NATP annual state tax update seminar at NJ TAX PRACTICE BLOG.

* Donna Bordeaux, wife of Chad, introduces us to the MERP in "MERP’s the word – aka Medical Expense Reimbursement Plan", at the couple’s blog BEANCOUNTER RAMBLINGS.

The MERP is actually nothing new – it has been around as long as I have been in “the business” (and that is a long time!).

* And Chad Bordeaux follows his wife’s post that answers the question “When does the 5-Year Roth IRA Clock Start?”.

Chad points out –

Contrary to what one might think, this is not based on the date that you actually made the contribution, but rather the tax year you made the contribution. The tax code deems all contributions made during a year as made on January 1st of that year.”

With the new rules regarding ROTH conversions it is important that those considering converting fully understand all the ROTH rules and regulations.

* I don’t have a cell phone, let alone an ipod. But for those of you who do have one, TAX GIRL Kelly Phillips Erb tells us that, “a new app for the iPhone, automilez™, now generates mileage logs for you after each trip – no more scrambling for a pen in your car” in her post “Mileage? There’s an App for That”.

* And Kelly wonders “Is the White House Banking on a Financial Industry Tax?

Let’s see if I get this. The government loans Paul (banks, etc) Peter’s (taxpayers) money. Paul won’t pay it all back, so the government taxes Paul to get the money to pay back Peter, and Paul passes the tax along to Peter, just as the tax on any business is ultimately paid by its customers. So the bottom line is Peter will pay Paul so Paul can pay back Peter. Have I got it right? Any way you look at it Peter is screwed (so what else is new?).

* The IRS has announced (in IR-2010-3) that it has “unveiled its first redesigned notices that are part of an on-going effort to improve the way it corresponds with taxpayers”.

According to IRS Commissioner Doug Shulman –

One of my priorities is to ensure that we have clear and simple communication with taxpayers. In the past, our notices often looked more like legal documents and not an effort to communicate clearly. The differences between the old and new notices are like night and day. They show the potential of our on-going effort in this area.”

The IRS providing “clear and simple communication with taxpayers”? This I gotta see!


Tuesday, January 12, 2010


I am confused about the two competency examinations discussed in the proposed regulations. Both cover 1040 issues – one with non-business issues and one with small business issues. Strangely enough neither exam covers Schedule E. Registrants are only required to pass one of the two exams.

Does this mean that if I take and pass the nonbusiness exam I will not be allowed to prepare 1040s that include a Schedule C or F? It seems obvious that the exam that covers nonbusiness issues will be somewhat simpler – so if it does not matter which test one takes why would anyone take the small business test?

The report indicates that, “the IRS plans to add a third test to address the competency of the tax return preparer with regard to business tax rules {here I assume corporation and partnership issues – rdf} after the three-year implementation phase is completed”.

I have suggested perhaps two separate tests, with two separate “credentials”. There would be a basic competency exam covering all aspects of 1040 preparation, and passage would permit one to prepare 1040s. A separate exam on “entity” returns – 1120, 1120-S, 1065, 1041, 990, 706 – would permit one who passes to prepare “entity” returns.

I am somewhat concerned about the proposed regulation that says “The IRS will perform suitability checks on those paid tax return preparers required to complete competency testing”. As long as all this means is verifying that a person who registers as a paid tax preparer has filed all of his/her required 1040s I do not see any harm. And I would expect that if the IRS found a registrant delinquent on a 1040 filing he/she would be given a period of time to submit the missing return. I would certainly not support a federal background check on registrants. There is no federal background check for becoming a CPA or lawyer (as far as I know).

The report does say, “For renewal of registration purposes, a tax compliance check is a limited review of the tax return preparer’s filing and payment compliance history”.

Regarding the annual requirement for continuing professional education – to be honest I think 15 hours per year is a bit wimpy. I think it should be 72 hours in the three-year registration period, with a minimum of 16 hours in any one year, as it is for Enrolled Agents. And I am not sure if a mere 3 hours in tax law updates is enough.

The regulations require the CPE to be in “federal” taxation. So I expect that seminars and workshops I attend that are limited to state tax issues would not count. The NJ chapter of NATP currently offers two full-day (8 hours of CPE) seminars each year. One covers federal tax issues, for the most part, and one is a NJ state tax update. I guess only one of these two seminars would qualify under the proposed regulations.

I do take issue with the annual requirement of 2 CPE credit hours in “ethics”. This is a pet peeve of mine. Making all preparers take 2 hours of continuing education in ethics each and every year is a total waste of time! As mentioned above I have been preparing tax returns for 38 seasons. 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”.

While I do believe that there should be some questions on ethics included in any proficiency examination, I would recommend a requirement of 1 or 2 hours of CPE credit on ethics issue updates once in each 3-year registration period.

I have no problem with being held to the ethical standards of Circular 230 that are presently in effect for currently “enrolled” or “licensed” preparers. Even as an unenrolled preparer I am subject to certain IRS ethical standards. And I do agree that registering as a paid tax preparer, and meeting the ongoing requirements, should not allow me to practice before the IRS other then to the extent I am already allowed.

While for the most part the tax preparation community accepts at least the concept of registering paid tax preparers, there are those, my fellow tax blogger Joe Kristan included, who oppose the new regime. One reason they give is that compliance will cause a financial hardship for the previously unenrolled preparer, and will cause a substantial increase in the cost of tax preparation.

I cannot see that registration and licensure of tax preparers is going to substantially increase the cost of tax preparation. I already earn more than 15 CPE credits in continuing tax education a year – so there is no additional cost to me there. And to be honest, any unenrolled tax preparer who was not already taking at least 15 hours of continuing education per year certainly should have been.

My only additional cost will be for taking a competency exam review course and the actual exam, which would not be necessary if there was “grandfathering”, and for the initial and renewal registration fees. If the IRS does not get greedy (like New York State) this amount should not be much – less than $1.00 per tax return per year if actually passed along.

The only area of concern is if newly “licensed” preparers unnecessarily inflate their fees because they now have a “credential”. Let’s face it – CPAs certainly charge more than unenrolled preparers for the same work simply because they feel the presence of the initials after their name justifies it.

Many years ago one of the students in an Adult School tax class I taught asked me what was the difference between a tax return prepared by a CPA and one prepared by someone like me, an unenrolled preparer. My answer – about $100.00. And that figure has to be adjusted for inflation.

A recent article at WEBCPA reports that Barry Melancon, president of the American Institute of CPAs, expressed “apprehension” about the new credential the rules will create. He agreed that the proposal will foster greater compliance with the Tax Code and more reliable service for taxpayers, but expressed (the highlight is mine) “concerns about the IRS plan to provide tax preparers who are not already CPAs, enrolled agents or attorneys with a certification based on limited qualifications. A new IRS examination process may cause confusion among taxpayers about the relative qualifications of tax return preparers.”

There already is confusion and gross misconception about the relative qualifications of tax return preparers. A majority of taxpayers wrongly assume that CPA = tax expert. This is simply not true.

The AICPA itself has said (again, highlight is mine), "We do not offer a credential in taxation. In general, our approach has been not to develop credential programs around areas for which the public already believes CPAs to 'own'. In addition, we do not endorse a particular tax credential.”

As I have said time and again – just because a person has the initials CPA after his/her name doesn’t mean that he/she knows his arse from a hole in the ground when it comes to 1040s.

Having a CPA credential means that the person has passed a difficult test in accounting and auditing concepts and is permitted by state law to certify audited financial statements. It does not mean anything at all regarding the preparation of individual income tax returns.

Just like a doctor, a CPA can specialize. A CPA may indeed specialize, or be proficient or expert, in 1040 preparation. But the initials by and of themselves do not in any way indicate that the person bearing them has actually ever prepared a single 1040.

What, I believe, Mr Melancon is worried about is that now that there is a specific “credential” for unenrolled preparers CPAs will no longer have an unfair and unfounded advantage in the minds of the taxpaying public when it comes to 1040 preparation.

If a CPA or an attorney passed the same initial competency test and was required to take the same number of annual CPE credits in taxation as unenrolled preparers will be required to do under the new proposed regulations then one could be relatively sure that he/she was competent and current in 1040 preparation – and all tax preparers would be on en equal footing.

While I do not agree with Joe Kristan on the issue of regulating tax preparers, I certainly do agree 100% with him when he says –

The only sure way to improve tax compliance is to simplify the tax law and eliminate the most egregious opportunities to cheat, like refundable credits.”

Prof James Maule has a similar on the money comment -

If the Congress genuinely cares about reducing the number of errors on tax returns, it ought to turn its attention to genuine tax reform, which might not produce a simplistic tax system but surely would generate significant tax law simplification. Unfortunately, the IRS does not have the power to impose on members of Congress the sort of high standards it seeks to impose on tax return preparers.”

I am glad that the IRS will include public awareness in the new registration regime.
The IRS will utilize a full range of social media, public service announcements and paid advertising, if authorized, to provide taxpayers with information on what standards the IRS requires of tax return preparers and how they can determine whether their tax return preparer has meet these standards,” and “the IRS plans to introduce a searchable database of tax return preparers who have met the required standards on its website after the initial registration and examination period have been completed”.

The IRS report also addresses “Refund Settlements” (aka Refund Anticipation Loans or RALs).

Consumer and taxpayer advocates have long been vocal in their opposition to the use of refund settlement products. These groups charge that changes are needed to protect taxpayers from fraudulent and misleading marketing schemes that conceal the true, high cost of services and loan products.

Some consumer advocates argue that refund settlement products entice fringe tax return preparers, including payday loan stores, and check cashers. Others suggest that the presence of refund settlement products and their pricing structure encourages tax return preparers to take overly aggressive positions on returns to inflate the size of the expected refund and, therefore, the profits to be made from the refund settlement product

In response to these concerns –

The IRS will convene a working group to review the refund settlement product industry. Part of this review will include analyzing opportunities available for the improvement of refund delivery options, including those for unbanked taxpayers.”

While I support a total ban on RALs, or at least banning tax preparers from offering them, if the IRS could speed up the processing of refunds and its direct deposit procedures there would be no need for someone in true need of cash right away to resort to a usurious RAL.

So there you have my take on the IRS Return Preparer Review. What do you think? You can send your comments to me via email at Be sure to put “THE WANDERING TAX PRO COMMENT” in the “subject line”.


Monday, January 11, 2010


During the lunch break at the NJ chapter of NATP’s NJ State Tax Seminar this past Saturday I carefully read through the important parts of the IRS “Tax Preparer Review” report.

As the report points out –

Over the past 6 months, the IRS, tax return preparers, the associated industry, other federal and state government officials, consumer advocacy groups and the American public engaged in a transparent and open dialogue about tax return preparation in this country. Three public forums were held and more than 500 individuals and groups offered written comments.”

As a veteran tax professional I provided my written comments, directly to IRS Commissioner Shulman and to the IRS review committee, and posted extensively about the issue and the “open dialogue” here at TWTP.

Here are the proposed new regulations that resulted from the IRS inquiry (any highlights are mine)–

(1) “The IRS will require all individuals who are required to sign a federal tax return as a paid tax return preparer to register and obtain a preparer tax identification number. The IRS will make tax return preparer registration effective for three-year periods and require tax return preparers to renew their registration every three years.”

(2) “The IRS will establish competency testing for all paid tax return preparers required to register with the IRS who are not attorneys, certified public accountants or enrolled agents.”

The IRS will perform suitability checks on those paid tax return preparers required to complete competency testing.”

There will not be any ‘grandfathering’ from these testing requirements based upon past tax return preparation experience.”

Initially the IRS will offer two competency examinations. One examination will cover wage and nonbusiness income Form 1040 series returns; another examination will cover wage and small business income Form 1040 series returns.” Non-exempt tax return preparers will be required “to take one of the two examinations relating to 1040 issues”.

The IRS will develop transition rules to avoid significant interruption of services to taxpayers during the initial testing period. The preliminary approach will require that competency testing requirements be met no later than the required renewal date for tax return preparer registration.”

(3) “The IRS will require 15 hours of annual continuing professional education, including three hours of federal tax law updates, two hours of tax preparer ethics and 10 hours of federal tax law topics, for tax return preparers who are required to register. The continuing professional education requirements will not apply to attorneys, certified public accountants, enrolled agents or others enrolled to practice before the IRS.”

(4) “The IRS will place all signing and nonsigning tax return preparers under Treasury Department Circular 230. The authority granted to those individuals who do not have professional licenses and who are not enrolled agents, enrolled actuaries or enrolled retirement plan agents will be limited to preparing tax returns and representing their clients as currently permitted during an examination of any return prepared by the tax preparer.”

According to the report, “The IRS believes that increased oversight of paid tax return preparers does not require additional legislation” and plans to issue regulations on the registration of tax preparers “under section 6109 of the Internal Revenue Code”. It also “considers the preparation of a tax return for compensation as a form of representation before the agency”. So an Act of Congress will not be required to institute registration.

I do believe that I would prefer the regulation of tax return preparers to be done in this manner, via IRS regulation, rather than be established through legislation. This provides greater flexibility for change and adjustment as needed. Besides, Congress would probably muck it up anyway.

As I have posted many times before here at TWTP, and written elsewhere, I support the registration of all paid tax return preparers. So I have no problem with item #1. Attorneys and CPAs do not appear to be exempt from registering under the new regime, so there is no issue here.

The IRS proposed regulation apparently exempts volunteer tax return preparers such as those in the VITA or AARP programs. While I am not aware of the requirements to become an AARP preparer, I do know that VITA requires an extensive test in federal taxation each year in order to participate as a volunteer tax preparer, so I have no problem with this exemption from registration.

I do not oppose an initial competency examination; however I do have issues with the proposed regulations.

The report tells us –

For those who supported testing, another issue of concern was ‘grandfathering’. Proponents of ‘grandfathering’ suggested that many unlicensed tax return preparers have been preparing accurate returns for several years with little to no problems with the IRS. These tax return preparers, they argued, have been obtaining continuing professional education and kept current with the tax literature and should be given a pass on any testing requirements”.

I was one of the proponents who so suggested grandfathering.

My basic feeling about grandfathering was, to be honest, personal and somewhat selfish. I have been preparing 1040s for 38 tax seasons now. Why should I be forced to take a test this late in my career to prove that I know what I am doing – and to be able to continue to be employed in my chosen field?

There was also a practical side to my support of this concept. I felt it would be literally impossible for the IRS to properly test all the paid tax return preparers out there within an 8-month period. However I strongly believed that all paid tax return preparers, including attorneys and CPAs (but not EAs), should be required to be tested, and assumed the IRS would need to test all in one short period of time. The IRS realized the difficulty of administering such a test and the proposed regulations give initial registrants three (3) years to take and pass the test.

I still strongly support “grandfathering”. I am aware of tales of 20-25 year veteran tax preparers who do not keep current and still deduct items that once were but are no longer deductible. That is why I suggested –

Current unenrolled tax practitioners who have been preparing federal individual income tax returns consistently for five years (60 months), who have earned 50 hours of Continuing Professional Education credit in Individual Income Taxation in the two year (24 month) period prior to registration, and who are not currently prohibited from preparing federal income tax returns because of past bad act,s will be exempt from taking the initial proficiency examination.”

In hindsight perhaps I was too generous with the period of tenure - 10 years of continuous experience instead of 5 would probably be more appropriate - and too harsh with the required CPE during a “look-back” period – 50 credits in 3 years instead of 2 or 35 credits in 2 years now seems better.

The report states that “Several enrolled agents, attorneys and certified public accountants argued against ‘grandfathering’, noting that a minimum level of competency needs to be assured through examination”. However the underlying feeling behind this objection is basically, “If I had to take a test then everyone should”.

My strongest objection to the proposed regulations comes from exempting attorneys and CPAs from the competency examination and continuing professional education requirements. This is a big mistake.

Many attorneys, certified public accountants and enrolled agents expressed concern, however, about duplicate regulation for those tax return preparers who hold professional licenses or are authorized to practice before the IRS and are subject to IRS and State regulation currently,” the report said. “They argue that testing of those who had to pass examinations to obtain their professional credentials would be costly and redundant.”

It was also noted by members of the exempt group that, “most attorneys, certified public accountants, enrolled agents, and state registered tax return preparers currently must complete continuing education to retain their professional credentials”.

First let me say that I agree 100% that Enrolled Agents should be exempt from the competency test, because they have already passed a much harder test in federal taxation, and that the required annual CPE credits in taxation necessary to maintain enrollment are stricter than those in the proposed regulations.

However applying the argument to attorneys and CPAs is pure hogwash. Testing would hardly be expensive (a one-time cost of a few hundred dollars for a review class and the actual test) and most definitely not redundant!

A CPA is a certified “accountant” and not a certified tax preparer. A CPA passes a test that indicates a proficiency in accounting and auditing. While there are some tax questions on the test, more on “entity” (corporation, partnership, estate, trust) taxation than basic 1040 taxation, the CPA exam is not in any way imaginable the equivalent of the exam that must be passed by Enrolled Agents or even the new exam that will be required of currently unenrolled preparers.

The same argument applies to attorneys. One of my best friends is a labor lawyer and he does not even prepare his own 1040, and neither do several other partners in his firm. As I was saying to him at my father’s wake – I have been preparing 1040s for 38 years and will have to take a test to be able to continue to work, and must take CPE credits each year (which I already do), while he has never prepared a 1040 in his life and will be able to prepare individual income tax returns without having to do a damned thing!

Regarding 1040 preparation and the Bar exam, I have been informed by a tax attorney –

Tax is not a subject on the MBE (which is the national multiple choice portion) but can be included on the individual state essay exam. PA does include tax on its essay portion as a general rule (which is why most PA law schools suggest you take a tax course). There were sample tax questions on the 2009 model Q&A for PA {these involved business organization and estates and trusts and one item on taxation of scholarships – rdf}. I don't believe NJ or NY test on tax, though.”

And respected tax law professor and fellow blogger James Maule has said in his post “Shakeout in the Tax Return Preparation Industry?” at MAULED AGAIN –

Letting attorneys off the hook by presuming they are competent in tax law is foolish. . . . Attorneys take bar examinations that devote roughly one to three percent of the testing time to a tax question that is at the most elementary level imaginable. If the GAO and TIGTA took their experiment into law offices, they would discover almost all attorneys in this country who are not tax lawyers and even some who do practice tax would fail miserably when asked to prepare a tax return.”

And as far as I know, while CPAs and attorneys are subject to CPE requirements that vary by state, there is no requirement for either to take even 1 CPE in federal 1040 taxation to maintain their license to practice. Exempting attorneys and CPAs who wish to prepare tax returns professionally from mandatory CPE in federal taxation issues is totally ridiculous.

The IRS has said that it will “reach out to the various licensing authorities for attorneys, certified public accountants and other tax professionals to encourage them to support annual continuing professional education that includes federal tax law topics and updates.” Like that is going to do any good. They are only going to “encourage” to “support” and not “require” to “mandate”.

to be continued . . . . .