Monday, April 23, 2012
THAT WAS THE TAX SEASON THAT WAS
Wonder of wonders, miracle of miracles!
For the first time since I took over my mentor’s tax practice in the late 1990s I sent less than 30 automatic GD extension requests to the IRS on April 16th (there were over 60 the first year). Only 29 this year!
Of course there will be the additional half dozen GDEs that I did not submit myself, but were done directly by the clients, who will contact me in about 4 or 5 months.
All of the GDEs were submitted either because the client’s “stuff” was not in my hands by the March 25th deadline, the client did not send me anything and asked me to file a GDE, or I needed more information to properly complete the return (i.e. I did not have all the necessary information in my hands by March 25th).
Quite a few returns, historically extended every year, were timely filed for a change, and others were started and extended only because of missing information.
I dropped the ball in only one instance, putting off completing the return because of a massive “cut and paste” job for tons of investment transactions made difficult by missing cost basis info, provided to me by March 25th, and the demands of the new capital gain reporting system. However it was a strategic move – allowing me the time to complete several timely received returns that would have otherwise been extended
For the first time in years I stopped working on 1040s not because I had run out of steam and did not have the energy, or inclination, to continue - but because I had done all I could within the time constraints. I was actually able to complete a few selective returns that had been received after March 25th.
Was it because of the 3 extra days of this year’s season (February 29th, April 15th falling on a Sunday, and Emancipation Day in DC) – or am I just getting more organized, and finally getting my clients properly trained?
Due to the idiots in Congress’ inability to think or act there was nothing new in actual tax law – what is taxable and what is deductible – and no unnecessary processing delays for 2011 returns (except for early returns filed electronically – more later). The expiring Bush Tax cuts, the usual extenders, and BO’s American Opportunity Credit had all been extended through at least the end of 2011 (and most through 2012) in a relatively timely manner.
The major issue of this tax season involved changes in how certain items of income and expense were reported on supplemental schedules of the 1040. The major change concerned the new requirements for cost basis reporting, and the resulting new Form 8949 and the revised Schedule D.
For tax year 2011 brokers were required to report to client taxpayers, and to the IRS, the cost basis of most stocks, including foreign stocks, acquired on or after January 1, 2011 (“covered” securities) on Form 1099-B.
A new Form 8949 was added to report the individual short-term and long-term transactions in three separate categories – sales where the cost basis was reported to the IRS on Form 1099-B, sales where the cost basis was not reported to the IRS on Form 1099-B, and sales that were not reported on a Form 1099-B. A separate Form 8949 was required for each of the three categories. The Schedule D served as a summary of the 8949s.
The various brokerage and mutual fund houses all treated the new Form 1099-B portion of the year-end consolidated tax report differently.
For the most part this new system required some additional time, but not additional agita. In many cases the 1099-B reporting was excellently broken down into separate categories of short-term “covered” (transactions where cost basis was required), short-term “non-covered”, long-term, and undetermined term. And a gain and loss analysis, with cost basis for all, or almost all, transactions provided, was also included in the report in the same format.
In some the 1099-B received by the taxpayer included the cost basis for all transactions – although you often had to read the fine print to discover if the cost basis shown had actually been reported to the IRS.
The worst cost basis reporting formats came from Morgan Stanley Smith Barney and TD Ameritrade, with TD the bottom of the barrel. The 1099-B for these brokerages was not broken down to list different categories of transactions (as described above). Transactions were listed alphabetically, regardless of term or coverage, with cost basis information shown only where required.
MSSB reports included a gain and loss analysis, but it was merely broken down by short and long term, as had been done in past years. TD did not include a gain and loss analysis in its consolidated statement. The client had to go online to generate the analysis, also still in the short or long only format.
The additional work required for clients of these brokerages was not so bad with only one or two pages of transactions. But several had multiple (as many as 50) pages of transactions (can you say “churning”) – making proper reporting much more difficult and time consuming than in the past.
The new rules also required brokerage or mutual fund houses to report wash sale adjustments for all “covered” transactions. In thinking about this I wonder if the issuers of Form 1099-B will be properly treating the previously identified wash sale adjustments when reporting the cost basis of subsequent sales of the investment.
The also new requirement of credit and debit card merchants and third-party payers like PayPal to report transactions to the IRS, and to the recipient, turned out, despite initial concerns, to be a non-issue, as taxpayers did not have to separately report this income on 2011 Schedules C, E, F and entity returns.
The only other major reporting change was in the format of Page 1 of the Schedule E (rental and royalty income and deductions). This was a PITA at first (I really saw no need for the revisions), but I soon got used to it.
There were no major problems within my own practice this season. My new, faster, laptop, its cable access, and my copy machine ran smoothly throughout the 2½ months. The printer, while deciding it would only print colored pages in pink, and the black printing being less than perfect, did not slow down operations. There were no issues with my car or any personal concerns to distract and take time away from the job at hand. And there were no individual client issues.
Although, for the second year, I was required by federal law to submit all returns that I “file” electronically, unless the client opts out, I once again used the ridiculous, but advantageous to me, IRS interpretation of the word “file” to get “off the hook”. Each and every client signed the following statement (which I attached to my copy of the return) –
“My tax return preparer Robert D Flach has informed me that he may be required to electronically file my 2011 federal individual tax return if he files it with the IRS on my behalf.
I do not want to file my return electronically and choose to file my return on paper forms. My preparer will not file my return with the IRS. I will file my paper return with the IRS myself.
I was not influenced by Robert D Flach to sign this statement.”
With only 8 seasons left I have renewed my vow to never use flawed and expensive tax preparation software to prepare 1040s – so I cannot electronically submit my federal returns. I plan to contact Dave Williams in the near future and recommend having the IRS follow the lead of New York State and revise the regulation to require only preparers who use tax preparation software to file all returns electronically (unless the client opts out).
Speaking of electronic filing, ACCOUNTING TODAY recently reported that –
“The Internal Revenue Service delayed tax refunds early this filing season for 7.8 million tax returns, according to a report by the Treasury Inspector General for Tax Administration, which also described steep cutbacks in customer service at the IRS.
The report, which provided interim results of the 2012 filing season, noted that taxpayers who e-filed their tax returns early in the 2012 filing season experienced delays in receiving their tax refunds due to fraud detection efforts and problems with the IRS’s Modernized e-File system.”
Since I could not file federal returns electronically my clients all received their refunds in a timely manner.
I continued to submit NJ state returns via NJWebFile when possible (and the client does not object). However this system continues to be unavailable for too many returns.
For 2009 NJ-1040s the property tax deduction was limited to $5,000 (instead of $10,000) for taxpayers (single or married) with income in excess of $150,000. For 2009 returns one could not use NJWebFile if the income reported exceeded $150,000. This limitation was removed for 2010 and subsequent returns, but one still could not use NJWebFile if NJ Gross Income exceeds $150,000. Idiots are not limited to Congress. The cafones in Trenton are apparently too cheap to pay someone to revise the NJWebFile software to fix this ridiculous restriction.
I had been concerned before the season officially began (for me February 1st) that the major tax forms (1040, 1040A, Schedules A + B) were no longer available at local Post Offices – but soon discovered that the forms were now available (although in a bit less “bulk) at local libraries. As a pleasant surprise I found that, while the libraries did not have NJ-1040 forms, they did have New York IT-201s and IT-203s!
One strange difference this season. The client who is usually the first to meet with me to drop off each year- a NJ state trooper who usually comes on February 2nd or 3rd – was the very last to drop off, during the very last week, this year. He is going through a divorce and his wife would not give him her tax papers until the very last minute (filing separately would have been much too costly for the trooper because of the disparity of individual W-2 income).
As has happened all too often in recent years, several long-time clients had gone to their final audit in 2011 or early 2012, a few suddenly and surprisingly. One who will be truly missed is the husband of a couple whose 1040 I have been preparing since 1984.
So there you have it – the tax season that was. Only 8 more to go!
I welcome fellow professional tax preparer bloggers to share their insights and comments on the tax season.