Posts Tagged ‘Enrolled Agents’

Tax Roundup, 12/5/2013: Branstad floats optional income tax without federal tax deduction. And: is IRS hiding something?

Thursday, December 5th, 2013 by Joe Kristan
If Iowa's income tax were a car, it would look like this.

If Iowa’s income tax were a car, it would look like this.

Iowa Alternative Maximum Tax proposal revived?  Governor Branstad may push an optional income tax with lower rates and no deduction for federal taxes.  This plan looks like an attempt to improve Iowa’s byzantine income tax without provoking the wrath of Iowans for Tax Relief, the Muscatine-based advocacy group that strongly opposes efforts to do away with the deduction.  KJAN.com reports:

Iowa’s income tax rates higher when compared to most other states because Iowa offers a deduction that’s offered in only five other states. That deduction allows Iowans to subtract their federal income tax liability from their income before calculating their state income taxes.  “We don’t want to erode federal deductability,” Branstad says, “and that’s why we’re saying: ‘Give ‘em the option.’” By giving taxpayers the option to file their income taxes under the current system with that major deduction or under a new system with lower and flatter rates, Branstad might avoid the firestorm he faced from his fellow Republicans in the late 1980s when he proposed doing away with that deduction.

The Governor appears to plan to add a new twist to the plan, reports Kathie Obradovich:

Branstad indicated that he wouldn’t allow Iowans to “game the system” by changing their form every year. That means taxpayers who give up the federal deduction would have to stick with the choice even if the other option would result in lower taxes in a given year.

That means the new system would be a one-way street.  It no longer would be an “alternative maximum tax,” where taxpayers would always compute their tax both with and without the federal deduction and choose the lower amount.  That makes it even worse than the version passed by the Iowa House of Representatives last year, which would have allowed taxpayers to make the choice annually.  Unless the new system provides significantly better results in the great majority of circumstances, most taxpayers would want to retain the option to use the federal deduction.  That would stall the (presumably) desired transition to a simpler system.  Both the Branstad plan and the House plan significantly add to the complexity of the tax law.

While Iowa’s high stated tax rates — individual and corporate — don’t help, the ridiculous complexity of Iowa tax law is the real problem.  Iowa has a bunch of penny-ante credits and deductions that don’t apply for federal purposes.  These are too small to make a significant difference to taxpayers but also too small for the Department of Revenue to police.  There are also dozens of special-interest tax credits and deductions that take dollars from the rest of us on behalf of people with connections at the Statehouse.

It’s not in his nature, but the Governor ought to go bold and embrace the Tax Update’s Quick and Dirty Iowa Tax Reform Plan.  It strips the Iowa tax law to a very few deductions and repeals Iowa’s highest-in-the-nation corporation income tax while drastically lowering personal rates.  The Iowa Senate is unlikely to pass the Governor’s half-baked half-measure anyway; why not change the terms of the debate with a plan that actually makes sense?

Related:  The Iowa flat tax proposal: a good deal for middle class and up, but not for lower incomes.

 

taxanalystslogoChristopher BerginTax Analysts v. IRS: What Are They Hiding? (Tax Analysts Blog):

Back in August, I wrote about the lawsuit Tax Analysts had filed against the IRS seeking documents under the Freedom of Information Act. The documents being sought were training materials used to instruct and guide IRS personnel in the IRS exempt organization determinations office in Cincinnati. The big story then, and now, was generated by former EO director in the IRS Tax-Exempt and Government Entities Division Lois Lerner’s admission that the agency had used inappropriate means to determine which organizations qualified for tax-exempt status as social welfare organizations. The organizations singled out for extra scrutiny were mostly, if not entirely, conservative. Tax Analysts felt compelled to seek relief from the courts because we were getting nowhere with the IRS – other than the big stall – even though it had promised expedited treatment on our original request.

Several months later, the big stall continues — to the point that I have to ask myself whether the IRS just made a stupid mistake in targeting those organizations or whether something much worse is going on. 

They are using the “taxpayer confidentiality” excuse for their standard big stall.  Christopher isn’t buying it:

But I’ll say it again: Training materials, really? Why on earth would the IRS try to keep those secret? You’d think the training manuals would all be in a file cabinet somewhere, which hardly would require a search party of 100 lawyers and a scouring for tax return information.

Could it be that this time something is different? Could there be a smoking gun here? I’m not saying there is. I’m just saying it may be time to start asking that question. Because even for the IRS, this is darned peculiar behavior.

Congress should amend the taxpayer confidentiality rules to keep the IRS from using them as an excuse to hide its own dirty laundry.  It shouldn’t require a federal lawsuit to get the IRS to publicize internal non-taxpayer documents.

 

 

20130121-2Whither the Registered Tax Return Preparer Program?  Robert D. Flach argues that the RTRP designation that was part of the nearly-dead IRS preparer regulation power grab should be administered by the IRS on a voluntary basis.  I disagree.

Robert would like a way to distinguish the better class of “unenrolled” preparers from less-professional seasonal preparers.  I can understand that, but I don’t think that the IRS is the agency that should do this.  It would divert already strained IRS resources to do something the preparer industry could do on its own.  I agree with Jason Dinesen that if preparers want a government designation, they should take the Enrolled Agents exam, which is much more difficult than the RTRP literacy test.  The EA designation is sadly underappreciated in the market, and adding a new IRS-run designation would only make that worse.

 

The IRS reminds us that the “savers credit” can help lower-income taxpayers who contribute to a retirement plan.  This is a non-refundable credit of up to 50% of the amount contributed to IRAs or deferred to a 401(k) plan.  For parents, funding a young adult offspring’s retirement plan contribution is a tax-efficient way to help build a nest egg.

 

Don’t try this with your tax deadlines.   TIGTA: IRS Is Seven Years Past Statutory Deadline for Providing Online Account Access to Taxpayers (TaxProf).  From the TIGTA report:

The RRA 98 required the IRS to develop procedures to allow taxpayers filing returns electronically to review their account online by December 31, 2006. The IRS did not meet this requirement, and we determined that the IRS has not made adequate progress in allowing taxpayers to access tax accounts. Currently, taxpayers cannot review account information electronically.

In fact, the IRS is getting worse, having cut back electronic access for tax professionals.  That makes resolving even a simple IRS notice a tedious multi-week snail-mail slog.

 

Tony Nitti, The Definitive Questions And Answers On The New Net Investment Income Tax [Updated For Final Regulations] 

amazonCara Griffith It’s a Bird, It’s a Plane…It’s Amazon Prime Air? (Tax Analysts Blog).  Sales tax by drone.

Alan Cole, Report: Obamacare Premium Subsidies Will Need Fraud Protection (Tax Policy Blog).  No kidding.

TaxProf, The IRS Scandal, Day 210

 

Kay Bell, Tax e-filing continues to grow, hitting 122 million in 2013

TaxGrrrl, Will Congress Drive Up Gas Taxes In 2014?   

 

Um, because most commuters drive?  Why Does the Tax Code Favor Commuters that Drive? (Tax Justice Blog)

Going Concern, IRS’ Improved e-File System Is a Total Success Except For Two Jerks Who Foiled It

 

Don’t trust tax collectors, if you’re a tax collector:

The former tax collector of Plainville, who is also former treasurer of the Connecticut Tax Collectors Association, was arrested Monday morning and charged with first degree larceny, after being under investigation for possible embezzlement since June.

Debra Guerrette, of Bristol, was placed on administrative leave from Plainville’s Revenue office in June after Bristol police informed the town Guerrette was involved in a criminal investigation.

After an analysis of the financial records for the Connecticut Tax Collectors Association, and also Guerrette’s financial records, police said she had “misappropriated funds in excess of $50,000” between 2008 and 2013, into her personal account.

Will there be a special assessment of the collectors to make up the difference?

 

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Tax Roundup, 11/13/13: Is more IRS money what we need? And why I’m hoping against hope!

Wednesday, November 13th, 2013 by Joe Kristan
Taxpayer Advocate Nina Olsen

Taxpayer Advocate Nina Olsen

Is more money the answer to “pitiful” IRS service?   That’s what Taxpayer Advocate Nina Olson believes, based on a story by Tax Analysts ($link):

National Taxpayer Advocate Nina Olson in a November 9 speech decried as pitiful the level of IRS customer service given to taxpayers, which she attributed to inadequate funding that has forced the Service to automate many of the most important tax administration functions and skimp on training employees on taxpayer rights.

Everything else being equal, you can do more with more money.  Yet we all face limits to our resources, so we prioritize.  The IRS — at the urging of Nina Olson — has directed resources unwisely to its misguided attempt to boss the tax prep industry.  It has been a debacle so far, and it appears headed to oblivion in the courts.

The IRS has another administrative problem that the Taxpayer Advocate has pointed out.  The tax law is too complicated to effectively administer even with a much larger budget.  The tax law is seen as the Swiss Army Knife of public policy, and like a knife with too many gadgets, it becomes hard to work as a knife.  This chart from Chris Edwards at the Cato Institute illustrates the problem:

irs budget cato 20131113

 

Chris Edwards explains:

The chart shows that the IRS has become a huge social welfare agency in recent decades. Handouts have soared from $4.4 billion in 1990 to an estimated $91.1 billion in 2013 (red line). Handouts are down a bit in recent years because some of the refundable credits from “stimulus” legislation have expired. IRS administration costs have grown from $7.7 billion in 1990 to an estimated $15.3 billion in 2013 (blue line). 

How should we reform the IRS budget? First, we should terminate the handout programs. That would save taxpayers more than $90 billion annually and cut the IRS budget by 86 percent. 

The largest IRS handout is the refundable part of the EITC, which is expected to cost $55 billion in 2013.

So true.  Considering that over $10 billion of the $55 billion is stolen or otherwise issued improperly, the EITC is a nightmare.  There would be plenty of funding available for tax administration if EITC could go away.

But the chart also shows something else: if the tax law was no more complicated than it was in 1990 — and believe me, it was plenty complicated — the IRS administrative budget would be adequate.  But with the IRS transformed into a monster multi-portfolio agency charged with healthcare administration, welfare, industrial policy, environmental enforcement, etc., etc., its budget is hopeless.

 

This will work out well:

This article examines the tax collection process to see how the IRS might enforce the individual mandate under the healthcare reform law. It concludes that resistant taxpayers can generally be forced to pay the tax penalty only if they are entitled to receive refundable tax credits that exceed their net federal tax liability. 

From Jordan BerryThe Not-So-Mandatory Individual Mandate, via the TaxProf.

 

Don’t trust the Tax Foundation?  Maybe you’ll trust the Congressional Budget Office.  A commenter yesterday took issue with a chart I reproduced showing not only the tax burden at different income levels, but the amount of government spending benefiting different income levels:

It’s not “the first chart for any tax policy debate,” it’s the last chart you should want to find on your side of the debate if you want to have any credibility.

If that doesn’t work for you, maybe this one from the CBO will be less objectionable:

cbo table

This chart is more focused on direct transfers, but it says pretty much the same thing.  It also covers 2006, and the tax law has hit the high end harder since then. (Via Greg Mankiw).

 

Scott Hodge, Andrew Lundeen,  54 Million Federal Tax Returns Had No Income Tax Liability in 2011 (Tax Policy Blog)

 

Paul Neiffer,  Sale of CRP Land – Is it Subject to the 3.8% Tax?  It depends a lot on whether an appeals court upholds the Tax Court Morehouse decision imposing self-employment tax on CRP income.  “And if the Morehouse case is overturned on appeal and the CRP is treated as rents, the land sale will also be subject to the 3.8% tax.”

 

Kay Bell, Tax tips for newlyweds saying “I do” on 11-12-13 or any day

Jack Townsend,  U.S. Banks File Long-Shot Litigation to Block FATCA Reciprocal Requirements

Leslie Book,  Disclosure and the 6-Year Statute of Limitation: S Corp Issues (Procedurally Taxing)

Jason Dinesen,  EAs are Partly to Blame for Our Obscurity  “Yes, we are treated as the red-headed stepchild of the tax world. But a big reason for this is that we ALLOW people to treat us this way.”

Russ Fox, Dan Walters with Another Example of California Dreamin’

 

TaxProf, The IRS Scandal, Day 188

 

Hope lives! 

It’s Time to Give Up on Tax Reform” – Joseph Thorndike, October 29, 2013

When Tax Reform Rises From the Dead, What Will It Look Like?Joseph Thorndike, November 12, 2013.

I should note that his vision of resurrected tax reform is hideous.  If that’s what hope for tax reform comes to, I’ll hope against his hope.

 

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Tax Roundup, 1/21/2013: Preparer regs struck down. What’s next?

Monday, January 21st, 2013 by Joe Kristan

20130121-2After most of us stopped paying attention Friday afternoon, a federal judge in Washington D.C. stunned the tax world by striking down the IRS effort to regulate tax preparers.  U.S. District Court Judge James Boasburg ruled that the IRS lacks the legal authority to impose the RTRP program.

So now what?

I expect the IRS to appeal the ruling to the D.C. Circuit Court of Appeals, but that would take months.  It seems unlikely that Judge Boasburg would stay his own ruling in the meantime, and I doubt that an appeals court will either.

Dan Alban of the Institute for Justice, the legal team behind the suit, told Accounting Today:

“Anything that’s part of the RTRP regulations is struck down by this decision today,” Alban explained. “The PTIN is a separate regulation and it’s done under separate statutory authority. It’s a ‘shall issue’ type of permit. If you pay the fee, if you pay that amount of about $65, you’ll get a PTIN. The IRS was going to make the PTINs conditional on having the RTRP credentials, but now they’re not allowed to do that. It will go back to how it was last year, when you had to get a PTIN, but anyone could get one and you didn’t have to pass an exam or complete any continuing education.”

So no PTIN refunds, but no testing or CPE requirements, and, presumably, no more RTRP designation.  This would seem to end the need to get IRS approval for CPE programs, a requirement that has shut down many local CPE programs, like those offered by the organization of Iowa Enrolled Agents.

As of this writing, the IRS has yet to comment.

So who wins?  Small unenrolled preparers are big winners.  They are now free of the brain-dead RTRP bureaucracy.  Enrolled Agents are also big winners.  The RTRP designation threatened to kill the EA brand by confusing taxpayers about the difference between enrolled agents, with their much stricter testing and CPE requirements, and Registered Tax Return Preparers.  But the biggest winners are taxpayers, who will not have their costs increased by an IRS-imposed guild system that would reduce the availability of tax preparers while doing nothing to increase their quality.

The losers?  The IRS, which loses its ability to bully preparers with the extrajudicial discipline system of the new regulations.  The big national preparers, who were instrumental in drafting the rules because they promised to weaken their competitors.  And, retrospectively, Doug Shulman, the former IRS commissioner who masterminded the requirements.

 

When at first you get enjoined, try, try again.  In 2010 a Kansas City-area man was enjoined from setting up a bunch of tax shelter plans, finding that the man “Deliberately Advised His Clients to Break the Law, and Helped Them Go About Doing so.”  Apparently he dusted himself off and went right back to work.  From a Department of Justice Press release:

The Justice Department announced today that a federal court has permanently barred Cash Management Systems, a Virginia corporation, from promoting two tax schemes that allegedly involve disguising wages as tool-reimbursement or tool-rental payments. Also subject to the civil injunction order were Cash Mangement’s marketing arm, Xell Enterprises, incorporated in Kansas; its principals, Bruce Lemay and Richard Herson Mills; and Allen Davison, of Overland Park, Kan. According to the government complaint, Davison provided legal opinion letters regarding the schemes and served on Cash Management’s board of directors.

 Judge Eric F. Melgren of the U.S. District Court for the District of Kansas entered the permanent injunction, which the defendants consented to without admitting to the allegations against them. Davison was enjoined from promoting other tax schemes in 2010.

No, you can’t give a tax free “tool allowance” to employees.  And just because somebody was enjoined from promoting other tax schemes doesn’t mean this one works.

 

In case you were wondering: Iowa explains sales tax treatment of Groupons.

Gongol, The people who pay a tax aren’t always the people who give the money to the government:

Companies that make medical devices are paying a 2.3%  excise tax to help fund the Federal health-care program. A lot of people undoubtedly think that means the 2.3% will come straight out of the company’s profits (and this in turn can lead to strongly populist instincts about sticking it to the people making a profit in health care). But the people who pay for a tax aren’t always the ones who cut the checks to the IRS.

So true.

Paul Neiffer, IRS Announces April 15 Farmer Deadline

Russ Fox, Farmers & Fishermen Get Relief From Catch-22 Situation

Jack Townsend,  Tax Court Applies Willful Blindness to Find Civil Fraud by Clear and Convincing Evidence.  A discussion of the Fiore case, which I discussed last week.

TaxGrrrl, Why Justice Matters, Revisited

Richard Morrison,  Louisiana Tax Reform: Sizing up the Jindal Plan (Tax Po0licy Blog)

Roberton Williams,  How the New Tax Act Affects the Alternative Minimum Tax (TaxVox): “One curiosity that won’t please high-income taxpayers: the new Obamacare taxes on investment income don’t count in determining whether you owe  AMT.”

Robert D. Flach,  RULES FOR DEDUCTING NON-CASH CONTRIBUTIONS

Jana Luttenegger, IRS Offers Options if You Can’t Pay Your Taxes (Davis Brown Tax Law Blog)

Kay Bell, Tax filing preparation checklist

Brian Strahle,  Is Your Company Paying Too Much Virginia BPOL?

Dan Meyer, Identity Theft: When a Rogue Tax Preparer Could Cost You More than a Filing Fee

 

OK, taking bribes is bad, but not putting them on your 1040 is really beyond the pale.  C. Ray Nagin, Former New Orleans Mayor, Indicted on Federal Bribery, Honest Services Wire Fraud, Money Laundering, Conspiracy, and Tax Charges.  

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Why enrolled agents are crabby

Thursday, March 15th, 2012 by Joe Kristan

Aside from not getting much time off this time of year, Jason Dinesen says Enrolled Agents are miffed by the new preparer regulations:

EAs also have a very real and legitimate fear that we will get left in the dust once the new RTRP designation gets rolling. After all, RTRPs have the phrase

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