The Worst Tax Ideas of 2009

[kcjenkins]

http://taxvox.taxpolicycenter.org/blog/_archives/2009/12/24/4410734.html

[Catherine]

Yeah.

[jainen]

>>Tax Ideas of 2009<<

Great list. Let's see, #10 goes back to the previous administration, and doesn't take effect until sometime in the future. #9 is a trivial sop to some lobbyists. #8, 7, 6, 5, and 4 are just ongoing debate left over from previous years, with nothing new implemented. #3 he portrays as ineffective, but ends by bitterly showing he just doesn't agree with its political goals. #2 speculates on what one non-congressional advisory panel might come up with someday. #1 is a totally sarcastic jibe that never was and never will be taken seriously. Except by Howard Gleckman and his readers.

[JohnH]

I think he missed at least one.

My nominiation for #1 is the silly notion to force tax preparers to e-fling beginning in 2011.

[kcjenkins]

John, I think the real reason for this push is simply to give the IRS total control of ALL tax preparers. The huge majority of preparers are already doing most of their returns electronically. The largest number of paper returns are done by individuals filing their own returns.

Think about it. If you can only efile, and to efile you must have an EFIN, and the IRS totally controls who gets an EFIN, they can put anyone out of business in one day, just by freezing your EFIN. And there is no recourse at all for you if they do that. There is no standard procedure for appealing such an action by the IRS. NONE. I know of a preparer who actually had that done to him, after a run-in with an agent, and it took almost a year to get it corrected, even though they had no legal reason for freezing his EFIN. Only after he got his Federal Congressman involved did he even get a response to his many requests for information. Then they finally re-activated his EFIN, without any explanation given.

[Catherine]

John, I think the real reason for this push is simply to give the IRS total control of ALL tax preparers. The huge majority of preparers are already doing most of their returns electronically. The largest number of paper returns are done by individuals filing their own returns.

Think about it. If you can only efile, and to efile you must have an EFIN, and the IRS totally controls who gets an EFIN, they can put anyone out of business in one day, just by freezing your EFIN. And there is no recourse at all for you if they do that. There is no standard procedure for appealing such an action by the IRS. NONE. I know of a preparer who actually had that done to him, after a run-in with an agent, and it took almost a year to get it corrected, even though they had no legal reason for freezing his EFIN. Only after he got his Federal Congressman involved did he even get a response to his many requests for information. Then they finally re-activated his EFIN, without any explanation given.

The line between bureaucratic inertia and outright tyranny can be exceedingly thin.

[JohnH]

Yes. Both your comments are among the many reasons I've resisted e-flinging all these years. If I wanted to become an agent of the government, I'd have applied for a job with the IRS. I'm not interested in being manipulated into working as an extension of the IRS or a stealth auditor, but that's clearly where this process has been headed since day 1. I was hoping the process wouldn't reach completion until after I retired, but it looks like the pace is stepping up. I'm prepared to jump on the bandwagon for the final few years if I'm absolutely forced to do so, but it will be for the sole purpose of preserving my small practice while preparing it for sale. Right now I'm just hoping there will be some sort of administrative relief - maybe an "Opt Out" form. If they offer it, then every one of my clients wil be signing it. We will see.

[jainen]

>>the real reason for this push is simply to give the IRS total control of ALL tax preparers<<

It's no secret that the IRS has been raising ethical standards for practitioners. They will likely require registration in a few years, a concept that was implemented on the state level more than a generation ago. As an Enrolled Agent I support that idea. It works well here in California, self-enforced by a non-governmental industry group.

But I believe the push to e-file is simply economics. The IRS saves money in two ways. First, they don't have to pay for a huge data entry function. Secondly, they don't have to store all the records.

Well, don't you know those are just about the worst things tax professionals have always complained about? I don't WANT them retyping the numbers I already checked, and I would rather hold the documents myself and let them ask me instead of trying to find things spread across the country. E-file has been mandatory in California for years and I can state unequivocally it takes control AWAY from the IRS.

[JohnH]

Keep drinking that Kool-Aid.

Your government appreciates your full cooperation.

[jainen]

>>there will be some sort of administrative relief - maybe an "Opt Out" form<<

California has an extremely easy opt-out. The client does not need to give a reason or sign anything.

>>every one of my clients will be signing it. We will see.<<

When California first required e-filing, we all assumed it would be unpopular and many clients would opt out. Not a single one of my clients ever has, or of my colleagues that I know of. Electronic filing is universally accepted as faster, more accurate, and cheaper. What's not to like? Remember, H&R Block boosted their numbers tremendously that way in the 90's, but their business is down now because everybody offers it. (No, I don't mean RAL's, which few non-franchise preparers offer.) Your paranoia about "being manipulated into working as an extension of the IRS or a stealth auditor" is way off base.

[JohnH]

--> Your paranoia about "being manipulated into working as an extension of the IRS or a stealth auditor" is way off base. <---

You've got to be kidding...

==========================================================

As for my comment about the "Opt Out", let me be more precise.

If one is offered then I guarantee that 100% of my clients will sign it.

[BulldogTom]

Sorry John, I think you are off base on the e-file thing. (although I agree with the stealth auditor comment)

I did not like it when the state of CA went to e-file. I offered every one of my clients the chance to opt-out. Very few did, even though I was charging for e-filing the return. Then I figured out how easy it was, and the next year started charging for the opt-out form. I don't charge for it anymore. Every once in a while a client will want to paper file. But the majority of my clients (like 99.9%) don't care how the return gets filed.

Tom

Lodi, CA

[JohnH]

Tom: Yes, looks like I'll be the last one to turn out the lights in the paper-filing room.

The reason I say 100% of my clients will sign the Opt-Out form is this:

Scenario #1:

ME: Here's your opt-out form.

CLIENT: Why should I sign it?

ME: I don't e-file.

CLIENT: OK

Scenario # 2:

ME: Here's your opt-out form.

CLIENT: Why should I sign it?

ME: I don't e-file.

CLIENT: But I don't want to opt out

ME: Here's your stuff. Bye.

[kcjenkins]

>>the real reason for this push is simply to give the IRS total control of ALL tax preparers<<

It's no secret that the IRS has been raising ethical standards for practitioners. They will likely require registration in a few years, a concept that was implemented on the state level more than a generation ago. As an Enrolled Agent I support that idea. It works well here in California, self-enforced by a non-governmental industry group.

But I believe the push to e-file is simply economics. The IRS saves money in two ways. First, they don't have to pay for a huge data entry function. Secondly, they don't have to store all the records.

I wish I believed that was all it was. But frankly, I expect that if they make ALL professionally prepared returns efile only, they won't need to fool with the problem of registering preparers. They will have the ability to eliminate any preparer they want to eliminate, without any reason given. Because they have that ability now, over your EFIN. I don't mean to sound paranoid, but I've seen it personally, as I mentioned. And that was scary, to see them just cut off his EFIN one day, with no notice until after the fact! And researching to determine the proper way to appeal it was even scarier, as THERE IS SIMPLY NO APPEAL PROCESS FOR THIS IN THE CODE.

Raising ethical standards is fine, but when they have the power to decide, without notice or a right to appeal and get their decision reviewed, that you should lose your right to efile, and efile is the only legal way you can operate your business, it's Big Brother at his worst, IMHO. My point is that in the case I was aware of, there was, in fact, no violation of any section of the code. And they did not even tell him who made the decision. They simply cut off his EFIN. Then sent a letter a week later, stating that he had been suspended from efiling. That was ALL. How would that make you feel, Jainen, if you got that treatment?

I agree that efile is beneficial for the IRS, economically. But most professionals already efile as much as they can. And if they want to, there are other ways to encourage it than making it totally mandatory.

[JohnH]

The best way to encourage e-filing would be to announce they plan to audit 50% of all paper-filed returns. That's a statistic that taxpayers would understand immediately. Even if they didn't follow through with the plan, the mere suggestion that they intend to do it would achieve the desired purpose. (That MIGHT even push me over the edge).

[Pacun]

I try to efile every single return but sometimes I must paper file. Last year, I called ATX because I had someone with ITIN who was using a fake social security number. (IRS doesn't care and that's exactly why ITINs were created). This person was able to efile with no problems.

I had another one who had an ITIN and was not using a fake social security number at work. This person had the W-2 under his correct ITIN while the previous one was using a fake social security. The person using fake social security number at work (on W-2) was able to efile his 1040 with ITIN and the other who was using his own ITIN at work, could not efile using his ITIN on 1040.

I called ATX and they could not answer the question on the spot. I called the IRS and explained the situation to the officer. Without knowing the rules, the person told me that I was about to commit fraud and that I should stop immediately. I didn't have the regulations in front of me so I could point her to the IRS efiling regulations. IRS officer asked to talk to my partner who is the one registered (authorized by the IRS) to efile. Officer threatened my partner to cancel her ability to efile because I was about to commit fraud. My partner apologized and told IRS officer not to worry. Based on what KC says, I was about to be unplugged and that was at the very beginning of tax season.

Next day a VP from ATX (the one in charge of efiling) called me and said that I was not doing anything wrong. VP said, the tax payer who uses ITIN on the W-2 and on the 1040 will have to paper file. VP also said that the one who has a social security number on the W-2 and uses an ITIN on the 1040 could efile with no problems, which I knew. My logic was if someone who has a fake social security on W-2, can efile, why not the one with his own ITIN on the W-2.