SaraEA

C'mon folks, we are talking about a $50 annual PTIN fee here. Most of us make three to five or six times that amount on a single tax return that takes less than an hour of our time. The PTIN does serve a purpose beyond the original one of replacing our SS numbers on signed returns. To some extent it helps the IRS track down dishonest or poorly trained preparers. For example, they now send letters to preparers who have too many errors on EITC, Sch C, and Sch E returns. How do they know who makes too many mistakes? The PTIN. At an IRS liaison meeting the presenter said in routine audits their staff record the PTINs and if the same number keeps popping up they target that preparer's returns. This is how they catch preparers who habitually inflate charitable deductions, employee business expenses, fuel tax credits, education credits, etc. The same unsubstantiated deductions appear on the majority of their returns, which authorities would never have figured out without the PTIN. What will be another plus is that preparers will be able to monitor the number of returns filed under their PTIN. Currently only EAs can do this, but I was told we were chosen because we were the smallest sample to test the process. Preparers have become the target of identity thieves, so at least we will be able to check if someone is filing returns under our PTINs. I will gladly give up one-fifth of my fee on a single tax return for this protection. I'm with Lion that the cost of the PTIN is inconsequential compared with the cost of everything else we need. E&O, tax prep software, Quickbooks, etc. seem to go up at a faster rate than we can raise our fees.

I think that EAs and CPAs were exempted from the RTRP requirements because they are already subject to more stringent rules. For example, in our state the state board of accountancy requires CPAs to have 40 CPE hours every year, while the IRS requires EAs to take 24 (the professional associations require 30). These professionals had background checks when they received their credentials, and they have to be current on their own tax filings. In fact when the PTIN came into being, EA license fees went down a lot because they had already been vetted. I don't object to the PTIN annual fee. It's a small cost of doing business and it does help the IRS to track down some unqualified preparers who tarnish our whole profession. Doesn't do much to curtail fraud and those who don't bother to sign returns, but it's one tool I'm glad they have.

The IRS does audit these 529 withdrawals--even said it was a "priority" item. As I recall, the pubs say don't report anything if used for education, but the IRS doesn't read its own pubs I guess. Last summer we must have had five of these audits. I recommend don't report anything (like the pubs say), but tell your client to pull the college payment transcripts now. They will be needed when the letter arrives.... And don't get too complacent that all is okay because the funds were used for school. Dates matter. If the withdrawal was made in December but spring tuition wasn't paid until January (or vice versa), you have a problem. I had this happen with one client who also made too much to claim any education benefits. He ended up scrambling to find receipts for books, computer, etc. Our joy that the IRS is finally requiring schools to report "amount paid" instead of "amount billed" on the T was short-lived. Schools pleaded that they need more time to adjust their computer systems so were granted a pass until 2017. When the T first came out (in 1997), they were granted time to adjust their computers. How long does it take? Do those 20-year old computers still exist?

This is old news. Note the sentence, " Those that complete courses would be included in a database that will be available to taxpayers for the 2015 tax season," and the cite to June (2015), The issue in the Loving case was that the IRS overstepped its bounds and did not have legal authority to impose regulation. The agency had the program up and running--exams created, CPE providers accredited, registration and payment system in place. After the court said they were not authorized to do so, all that set-up time and money went down the drain. The Taxpayer Advocate and others have since urged Congress to pass a law authorizing the IRS to regulate paid tax preparers. Only a law will give them the authority they need. I've been following the issue of regulation for a couple of decades. Bills have been passed in one house of Congress or another but the legislative sessions ended and the bills went no where; I believe one was actually passed by both houses but the then-president vetoed it. (The late 1990s?) The irony in this history is that both parties agree that regulation is needed. (If you are a regular reader of the weekly news feeds that list the actions IRS takes against unscrupulous preparers, you know the scope of the problem.) In today's extremely partisan world, where tea party members are doing whatever they can to get back at the IRS for targeting conservative nonprofit groups, no one is willing to give the IRS the money to do its mandated job moreless any more authority to do anything--even something as popular as regulating paid tax prep. I'm not denying that there wasn't a lapse in leadership (Lois Lerner), coupled with reports of frivolous spending that broke about the same time. The repeated IRS budget cuts are direct punishment for these sins. If Congress does grant IRS regulation authority they likely won't give them any money to do it so it will be moot. We'll just continue to endure 2-hour wait times on the phone and spend time cleaning up the messes created by fraudulent or stupid preparers.

Thank you all for the wonderful idea of keeping UltraTax on a pay-per-return basis when we switch to ATX (or now some are making Drake sound even better). We will have to pay for a federal UT license and, believe it or not, a license to access the per-return pay code. (That just means you can't print anything until you've paid for using the software for that return.) It looks like it will be about $3k for keeping access to UT, but who knows what the nickel-and dime fees will add to it. Still, it is a good security blanket. If we actually use UT for any clients, we can add the per-return cost to their fee. Another question, well two questions: Does ATX have an electronic file cabinet? With UT, we can send the completed return to File Cabinet. Then we scan the client's tax docs and send them to FC, along with any notes, projections, emails, whatever we want to keep in that client's file. I know ATX will convert our UT tax files to ATX, but can it convert our file cabinet? I ask because we dropped Creative Solutions Accounting (another UT program) and discovered we could no longer use it even for prior years that we had already paid for. We maintain almost no paper files anymore and absolutely cannot lose our electronic files.

I used to think the IRS came down too hard on us. At some seminars IRS liaisons treat us like partners, but others act like we're lazy idiots. (And then there was Karen Hawkins, who thought we were all criminals.) Gee, most of the tax pros I know spend inordinate amounts of time trying to determine correct basis, whether a household member really qualifies as a dependent, whether a client truly qualifies for a credit or a penalty abatement. Yet if you read the tax fraud blotters and the criminal proceedings published by Accounting Today every week, you wouldn't believe what goes on in the world of paid tax prep. These sources provide endless lists of preparers accused/convicted/imprisoned/enjoined for all sorts of crimes against clients and the US gov't. Paid preparers convicted of identity theft, of borrowing dependents from one client to put on another's return, making up income and expenses and donations and other deductions, filing returns for unwitting Puerto Rico residents who have SS#s but don't have to file in the US, giving clients a copy of their return and then changing and submitting it (with the extra refund going into the preparer's account), having all the client's refund going into their own account, it goes on and on. Unlike the errors Abby shared, and the many we see in our practices every day, these acts are not due to ignorance or sloppiness but to an intent to commit fraud and steal from individual taxpayers and/or all US taxpayers. Regulation could help curb the errors made out of incompetence because tax pros will have to know more to be allowed to prepare returns. (We will all still make mistakes--it's unavoidable given the complexity of the tax code and how very much there is to know--but stuff like ignoring depreciation and letting noncustodial parents claim dependents "because they pay child support" won't happen as much.) Those who intentionally break the law, however, aren't going to be held back by a few silly regs they won't care about. Catherine is right that the IRS wants us to do their audit work. Maybe it's also up to us to report fraud when we see it. Not ignorance, but intentional cheating.

We use ATX for payroll matters and 1099 and W2 reporting. We are looking into switching to ATX for tax this coming year. I'm a bit wary. UltraTax is a powerful program and does nearly everything I ask of it. What doesn't ATX do well? Our clients are fairly complex--lots of Sch Cs and entities, multiple rentals, multiple investment accounts, income from multiple states, multiple related partnerships. I do a fair number of 1041s, often involving different states. Can ATX handle all this?

joanmcq is correct that some states REQUIRE that state wages match Box 1 federal wages. NY, and I presume other states, has a form where you can break out what was actually earned in NY so you are only taxed on that amount. The reason is that the RATE of tax is determined by your total income, not just what you earned in NY. Say your client earned $1k in NY and $99k in WV. Without the fancy footwork, the client's NY tax liability would be zero (below the filing threshold). The allocation form will determine that at $100k income you client is in , say, the 10% state bracket (just making that rate up). The result is that there will be $100 NY tax on the $1k NY income. Other states do exactly the same thing even when the state earnings reflect what was actually earned in the state. Working through these forms is a nightmare though. There is no credit for taxes paid to another state because that $1k was earned in NY and not taxed by another state. The only time you would get a credit is if you lived in one state and worked in another, and the other state taxed that income.

This discussion makes me glad that we mere tax pros aren't permitted to give financial advice. We can give tax advice--like telling the client who has no tax liability one year they might as well make their IRA contribution to a Roth because the deduction won't help them and the future tax savings might. We might even go a step further and suggest to a client who has 10 little IRA CDs in 10 different banks that they might consider consolidating to make their life and tax return less complicated. Or give the same advice to someone who has so many brokerage accounts they have no idea what they actually own and get so much mail they end up forgetting half their tax docs because they are in the habit of not opening those myriad statements. But as to what they should invest in, we must remain silent. Good thing, 'cause not all of us watch the same TV shows.

The divorce decree originated in a civil court. The Internal Revenue Code is contained in Title 26 of the United States Code. The USC trumps civil courts, which means the IRS doesn't have to, and won't, abide by anything but what a federal court has to say. In your case, the IRC says only the mother whom the children live with can claim the exemptions unless she signs an 8332 stating she will not do so. The father can certainly take her back to civil court on contempt charges, but he'll have to win a signed 8332 to be able to claim them. I once had a couple who were divorced in October whose divorce decree stated they had to file jointly that year. I can only conclude the lawyers don't know tax law at all or don't attend to details (software produces most legal docs these days), and judges are too willing to accept what the lawyers agree to without paying attention.

I would think that if workstations can connect to the internet, and those same workstations can connect to the server, the server can get hacked. There are a lot of really brilliant hackers out there. Jack has a multitude of precautions to thwart them, but I've given up hope that anything on a computer is 100% safe.

A relative manages an arts and crafts store and was called over by a frantic cashier. The problem was that the items were marked 5 for $1 and the register was ringing up 20 cents each. Don't know if the cashier or the customer noticed the "error."

I believe preparers who put most expenses on the "other" line have a method to their madness. A detailed list of expenses helps you know what to look for the following year and to catch anything that's missing. If someone has a service contract for their HVAC and you lump it in with utilities, you might not remember to ask about the cost the following year. And some of the categories on the C, and the E for that matter, are so broad you're sure to miss things. "Office expense," for example, includes paper, toner, postage, maybe the IT guy and window washers, etc. If the total seems too high it could raise a flag, so maybe it's best to break out a few of the included items and put them on "other." There most be a middle ground for using that line.....

Do these same considerations apply when gifting interests in an S corp? Parents jointly own the S corp, want to gift it to daughter. Best to gift the stock or the assets? Corp is a very successful business and has at least $500k assets that are still being depreciated. (Probably some that are fully depreciated too.) Please help me think this through.

CPAacademy.com sent me emails for their webinars EVERY SINGLE DAY. The emails were huge, with dozens of lengthy links. Thankfully our email service plopped all of them into spam. I got so fed up I clicked the link to unsubscribe (hate to do that as it can bring you twice as much garbage because the email address is now verified as "live" and can be sold for more money.) It worked, and they stopped clogging my spam folder so I can see what's in there. Companies try to solicit business via email because it's so cheap, but do they really think sending people messages every day is going to make them want to sign up instead of thinking of them as stalkers and vowing never to do business with them?

I have a client with multiple IRAs who has repeatedly converted some to Roths, then recharacterized (sometimes only partial), then converted again, then converted others to Roths, recharacterized, etc. Accounts are mostly in different brokerages with different acct numbers when a conversion occurs and another new acct number when recharacterized. Each year some of the money is not returned to any type of an IRA and is a distribution (from which type of account?) She's done the same thing with her spouse's multiple IRAs. I literally keep maps to track the flow, but when I she takes distributions I get lost and have no idea if the 5-year rule applies to that particular acct. Even worse, she lives in a state that does not permit tax-free contributions to retirement accounts except 401ks--and therefore IRAs if rolled over (but doesn't tax the money on the way out). I think I have a handle on the federal taxable amts but so many of these accounts have changed character so many times I have no idea if the state amounts are correct. I decided we'll let the state figure it out if she's ever audited. She's doing this brilliant scheme all by herself--no advisor to blame. When I asked why, she said something about keeping her tax rate at 15% in the future, taking out plenty of money to live on but some of it was already taxed so her rate will be low. Guess what? She has never been in the 15% bracket and with her pension income alone likely will never be. I for one am thrilled with the new regs limiting conversions and recharacterizations to one per year per taxpayer, not per account! Too late for this client though.

My Masters program was a law course. We studied countless Tax Court and Supreme Court cases. After reading the initial summary of facts, you'd see right away that the defendant was guilty or innocent, could or absolutely could not do whatever s/he did. Then you'd read the case and reasoning, including things like the "intent of congress" and "plain language" definitions and the ruling was opposite of what you'd expect. You sure realized how many moving parts there are to a simple code section. The biggest lesson I learned is that I have so much yet to learn. In anything tax related, we're best off sticking with the "it depends" response rather than jumping to any conclusion. We already do this when a client wants to know how much their return will cost before we've looked at the paperwork, or wants to know how much they'll owe or get back before we've entered a single number.

Life insurance is not taxable to the beneficiaries, in this case the estate. It may be included in state Probate filings, however, depending on the state.

"why oh why won't people stop robbing their retirement accounts? Leave them alone. Please." PLEASE! What do people think they are going to live on in retirement? We've all seen it time and again. Client takes $100k out of retirement account, then falls on the floor when we tell them how much they owe. "But I already paid the taxes!" Sure, you had a whole 10% withheld (which only covers the early withdrawal penalty) and NO state. And with the added income, 85% of your SS is taxable, and your Medicare contributions will go up too. On rare occasion a client will call BEFORE they take the distribution. When I tell them how much to withhold/put aside for taxes and they have to keep adjusting the withdrawal amount to arrive at the cash they need to buy a home, pay bills, whatever, it does give them pause. Yet they still do it. Combine this common practice with the number of people who give their homes and businesses to their children so they will qualify for Title 19 someday (while their kids live in luxury) and you can see what the future holds. There won't be enough people paying taxes to cover the nursing home costs of the purposefully destitute. Back to the days when nursing homes where people went to die. Ten or 12 in a room with one nurse, no activities, gross food, because the taxpayers won't be able to afford it. Repeat: PLEASE leave your retirement accounts alone.

The free update ends sometime in July. After that it will cost $ to buy it. That should end the annoying and dangerous "update now" notifications.

Look at the trust document. Usually capital gains are attributed to the trust corpus, so the trust gets to pay the tax. (If the trust document doesn't address this issue, look at state law.) If the trust is going to dissolve, the gains can pass through to the beneficiaries. If not, it may be able to switch to a "complex trust" and distribute the capital gains. Again, the trust document will govern. You have the cap gains calculated correctly.

Are the students the ones being asked to pay their IRS "debts" with itunes cards?

It depends on the kinds of notice the IRS already sent. Has the client been issued a notice of deficiency? Has the time to respond passed? In that case, get your POA and call to explain the situation and ask what you need to do to fix it. Any corrected return you might have to file will not go through the normal channels but to a "reconsideration" unit, or something like that that handles cases where deadlines have expired. I'm not sure a corrected return is needed in this case, just proof that the income reported to the client actually belonged to the nonprofit. It boggles my mind how smart, rationale people can ignore IRS notices like so many do. Do they really think that the IRS will just go away? I've had many clients come to me (AFTER the IRS has attached their pay, took their bank account, filed liens) with a few IRS letters and you can tell just by the sequence numbers they have a whole drawer full more at home.

Same thing in CT. They scan the bottom of the checks, and the scanners don't read the "pay to" line, just the account and routing numbers. So they get to cash a check made out to "US Treasury." Now if I tried to cash a check made out to Abby or Gail, how far do you think I'd get? I think my boss is right: the clients are getting stupider. The preparer who dealt with Schirallicpa's client likely chose a paper extension because a payment was being made and s/he didn't have the bank info to electronically pay (or the client didn't have the money in the account at the moment). Client gets the vouchers, instructions clearly highlighted in yellow, and stuffs the wrong check in the wrong envelope. I had a client who actually discarded my envelopes, made checks out to the US and state, and hand-addressed two envelopes to the state, which happily cashed them both. Didn't realize what happened until he got an IRS notice, I asked for copies of the front and back of the US Treasury check, and there it was: deposited to the state. He initially blamed me for the mistake, backed off and apologized, and is now my new best friend. I try to make a habit of never blaming a prior preparer until I know both sides of the story. Just today I responded to an IRS notice for a client whose preparer she had for decades left all the stock sales off the return (but included the interest and dividends, so I know they had the 1099). I just said that at the height of tax season when most of us haven't had sleep or food for days, stuff happens.

Taxxcpa and Lion, perhaps suspicious returns were filed for these clients? The IRS sent a letter to the fraudster requesting additional info and wouldn't process the return until they received a reply. When your clients filed, their accounts were already flagged and that's why it took so long? We had two clients receive letters asking them to verify returns they hadn't filed yet, but both of those had to file their actual returns on paper. Your clients didn't receive letters, just experienced a delay, but there must have been a reason for it. The IRS filters are definitely getting better.