Our Taxing Times

RAL Fees in Court

Thanks to Tax Pro Today for the heads up on this.

The California State Supreme Court denied an appeal made by Liberty Tax Service on a 2009 ruling. Actually, they refused to hear the case after the state appeals court upheld the original ruling.

The judge in the original case said that Liberty had not adequately disclosed the fees it was charging on Refund Anticipation Loans (RAL). In fact, they were not making it clear to clients that these were loans against their refunds.  Liberty was ordered to reimburse California clients $135,000 for the extra fees and pay the state $1.17 million in civil penalties. Liberty says they have already paid the penalties.

The RAL business has changed since the original ruling was handed down. The FDIC and OCC (Office of the Comptroller of the Currency) have pressured banks they oversee to drop their RAL programs. This doesn’t mean that the RAL problem has gone away. Some tax preparer have worked out arrangements with finance companies to offer loan programs. Also, all the national chains and many independent preparers offer programs where the tax preparation costs can come out of the refund for additional fee.

I can see why a taxpayer will take advantage of the RAL or other refund program. But it’s up to them to make sure they understand what the tax preparer is offering and what they will be paying in fees. Most preparers offering these programs are honest but it’s easy to skim over the paperwork and point to the signature lines when the office is busy or it’s clear the client isn’t interested in the fees just the refund.

This court case got some California taxpayers some of their RAL fees back in 2009. Liberty received a wrist slap for doing a poor job of disclosure but what about the other tax offices skipping over full disclosure? A taxpayer’s best protection against them is to insist on knowing what fees they are being charged and being willing to take their business to another tax preparer if they don’t receive the info they need.

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That Reminder - 2013

Your Failure to Plan Is Not My Emergency!

 

There are only 3 weeks before tax returns are due. But that does not mean you should wait until the last minute to get your return to me (or any tax pro). Yours isn’t my only return on my desk. If you leave it too late, I won’t be able to get your return done without an extension.

I know there are all kinds of reasons why you procrastinate, but that doesn’t really matter. The bottom line is there are only 24 hours in the day and I can’t pull extra tax time out of thin air to accommodate late returns. The longer you procrastinate I have less time to work on your return. This is when missing info or unexpected circumstances can hold up the tax prep past April 15^th. You don’t want that to happen.

The best idea is to get your tax documents to your preparer ASAP. If you put it off, don’t look for too much sympathy from me. You have been warned.

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Freebies

I earn my living preparing taxes. I guess you already had that figured out. I get paid for my knowledge on tax issues and applying that information to the taxpayer’s individual situation.

Yet I’m regularly asked to do work for free or for a reduced price. I’m not talking about price shoppers. I have a firm policy against pricing over the phone. But if the client will come into the office and let me start the return, I will give them a fairly accurate price quote and a good idea how the return will come out. If they aren’t comfortable with my price, I will give them all their paperwork back. No charge.

The problem is those who let me completely prepare the return and then start with their hard luck story and ask for a free return or a significantly reduced price. Some seem surprised that I would expect them to pay before I will file the return. But that’s one of the things you have to deal with when you run a business.

For taxpayers who really can’t afford to pay to have their tax return prepared but can’t do it themselves, I would suggest VITA or TCE. VITA and TCE are IRS programs which provide tax return preparation help to taxpayers. These are volunteer programs so they can provide free help. VITA can help with returns for taxpayers making under $51,000 a year. TCE volunteers focus on helping taxpayers 60 years old or older. For more info about the programs and how to find a location near you, please check the IRS website.

Our Taxing Times has increased the number of taxpayers seeking free tax help. These are not readers or potential clients who are asking for clarification on an issue or with a general question. These are people who want me to make a decision about a specific issue that affects their return. A return that I’m not going to prepare. Too often they already have an opinion from their tax pro but they don’t like what they are hearing and want me to tell them what they want to hear. Sorry! If you want advice specific to your situation, we need to talk about you becoming a client.

FYI, I also don’t know anything about Turbo Tax or other box or online tax software so I can’t answer your questions about those programs.

I do some pro bono work and make payment and pricing arrangements but that needs to be discussed before I preparer the return. The bottom line is that you don’t work for free so you shouldn’t expect that I or any tax pro will prepare your return for free.

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Before You Sign

I think e-filing has made taxpayers a little lazy. Back in the old days, they would gather not only their source info like W-2s and 1099s but they would have a copy of the instructions for whichever 1040 form they were using. They would spend an evening or a whole weekend filing in the form. They knew what was on the form. Now, with more taxpayers using a paid preparer or tax software fewer know what’s on their return.

I see clients all the time that don’t know what was on their return. They get surprised when I tell them that they can’t take certain credits or deductions because they think they’ve taken them before. As I try to review the return with them, they stop me and just want to know what the refund is. It’s clear that they don’t look at the return I give them. That is a mistake. To file the return, the taxpayer has to sign either the return or the electronic filing form. This states that they know and take responsibility for what is on that return.

Whether they do it themselves on paper or with tax software or use a tax pro, the taxpayer has to understand that they are responsible for everything on the return. It’s their return and they will answer to the IRS (or state tax authority) if there is a problem. They will be the one responsible for paying the extra tax, penalties and interest.

So, take the time to review your return before you sign anything. Check dependents, income and deductions. Is there something wrong or missing? Find out why. Don’t assume that the software or tax pro is right. Ask questions.

And while you’re being careful with you return, take a minute to check any other paperwork you are being asked to sign. Are you signing up for a program you don’t want? Do you understand the costs of what you’re buying? And don’t sign a blank return or form not completely filled in. That’s just asking for trouble. There are preparers who will scam you.

If there turns out to be a problem on your tax return, the IRS will not ignore it because you used a tax pro or software. So, protect yourself and check your return. There probably isn’t a problem but just in case you’ve done your best to protect yourself.

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Voluntary Licensing?

With the current IRS licensing on hold, Robert Flach, the Wandering Tax Pro, proposed a voluntary licensing program on his blog and asked for comments and thoughts. Here are mine.

This is all conjecture since we don’t know yet know how the IRS will respond to the defeat. But assuming the decision doesn’t get overturned and Congress doesn’t pass a proper law here is what I think about a voluntary tax preparer certification/licensing program.

The PTIN program is continuing. Loving vs. IRS didn’t change that. I also don’t think the fees will change because the IRS needs to cover the cost of the registration program and PTIN database. Renewal should be annually or at the most every two years. Over 2 years and the lists become stale.

As for the voluntary licensing, which one? It would be nice to think that one of the existing tax preparer organizations will create a definitive program but I can see testing and certification programs popping up all over the place. That could be the downfall of a voluntary program; too many options and criteria. Each program would have their own designation and qualifications. Tax preparers could chose the program they like the best (easiest test, least continuing education, lowest cost). Taxpayers would be confused trying to keep the designations separate.

If I was creating the program, I would have a mandatory test and annual continuing education of at least 15 hours for anyone preparing over 10-15 returns a year. I wouldn’t have grandfathering (sorry Robert) because I’ve seen too many “experienced” preparers make mistakes. If you’re going to have a standard, everyone should have to meet the same standard no matter how long they’ve been in business or how many returns they do a year. Keep it simple.

About the test. It wouldn’t be open book. It should go a bit beyond the minimum knowledge of the RTRP test. If you’re going to competency test someone, you should really test their knowledge especially if you are going to market that person as an expert.

I also don’t care what they call the new program as long as it won’t be confused with “Enrolled Agent”.

The key to any licensing program is education of taxpayers. They have to know how it’s to their advantage to use a certified/licensed tax preparer as opposed to one who isn’t.

So that’s my idea for voluntary certification/licensing; a proper test and continuing education with the same standards for everyone. Then spend some money marketing your graduates to the taxpayers.

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Licensing Pity Party

So much for not dealing with taxes on my last free Saturday.

Yesterday the decision on Loving vs. The Internal Revenue Service was handed down and it was a big surprise. The judge ruled that the IRS must stop the licensing of tax preparers. A permanent injunction was issued. Now we have to wait to see how the IRS will respond.

But I need to rant a little.

This lawsuit involved three tax preparers who claimed in part that the costs of the new tax preparer regulations will force them to stop preparing returns. Bovine excrement! The preparer costs are a onetime testing fee of $116, an annual PTIN registration of $64.25 and the costs of 15 hours of continuing education. How much does the CPE requirement cost? That depends on the courses used. In 2012, I paid $428.50 for 32 hours of course work. That averages to $13.39 an hour. I could have spent less. I’ve seen free CPE and companies that offer packages under $10 an hour. I’ve also spent more for special courses I wanted to take. But working from an average of $15 an hour for 15 hours equal $225 a year for continuing education. So the plaintiffs in Loving vs. the IRS contend that a onetime cost of $116 and an annual cost of about $300 will force them out of the tax prep business. Sorry, but if your business can’t survive a $300 expenses (which can be passed on to clients) then you should really consider not being in that business. Sorry!

But should the continuing education cost really be a new expense for any tax preparation business? How do the plaintiffs and thousands of others prepare for the tax season? How do they keep up with law changes and paperwork requirements?

I understand filing this lawsuit under strict libertarian principles. But part of the judge’s ruling is that this law will cause “irreparable injury” because 2 of the plaintiffs would have to close their businesses. Closing a business for $300 a year plus a onetime testing fee is bogus. Especially when some of the $300 should have been expenses the business was already paying.

Tax Season Delay

New Year’s Day has long been a work day for me. All the procrastination has ended and I have to get everything printed, mailed, collated and cleaned for tax season. But this year, we have the fiscal cliff. Still! And that will impact the tax season.
Right now we have a tax (and other things) bill in the House, The American Taxpayer Relief Act of 2012 (ATRA). The Senate stayed up until the wee hours of the morning to pass their bill. But the House doesn’t like the bill because of  the lack of spending cuts and there is a good chance that they will not pass the bill as it stands. They could make changes and punt it to the Senate. That happens all the time. But there’s a catch right now.
The 112th Congress ends at noon on Thursday January 3, 2013. That’s the law. And when the 112th Congress ends, the American Taxpayer Relief Act of 2012 dies. The 113rd Congress will have to start all over on tax relief once they’re sworn in.
On November 13th, the acting IRS Commission sent a letter to Congress stressing the importance of dealing with the AMT patch and the tax extenders ASAP so that the 2012 return filing would not be delayed. While most of the attention was on the 2 month or more month delay which would be caused by the failure to pass an AMT patch, Mr. Miller also pointed out in that letter that the tax extenders could cause a delay. He pointed to 2011 when the 2010 returns for 9 million taxpayers were delayed for a month so that the IRS computers and forms could be changed to account for last minute legislation. So even if the House passes the bill before them now, a large portion of taxpayers will have to wait to file.
The prospects are worse if the House doesn’t pass this bill by noon on Thursday. The new Congress will have to start the legislative process over. The IRS can’t wait long to see if they can quickly work out a deal. They will have to start the re-programing process and we could see an across the board filing delay until at least March. (A frightening thought. ATRA doesn’t pass the house and dies at noon Thursday. Then IRS starts making the changes needed by the loss of extenders and no AMT patch. The after a few weeks work, Congress fixes those issues retroactively and now the IRS has to start the update process all over again. And delaying filing even later. Like I said, frightening!)
The best bet for most taxpayers is for the House to pass ATRA and work on the needed spending cuts next year. But what will happen? I don’t know about the law but I do know that at least some taxpayers won’t be able to file until later than usual no matter what happens to ATRA in the next day and a half.

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Up To The House

As I’m sure you’ve heard by now, the Senate passed a tax bill very early this morning. It wasn’t exactly what anyone wants (it’s a compromise after all) but it will work. The problem is that it now has to go to the House.

I’m not going to list a bunch of provisions since I’m sure that the House will try to make changes to the bill. The first step is to the House Conference Committee at 1pm EST. They’ll review the Senate bill and decide what they don’t like and want to change. I don’t expect them to fast track the bill so we’ll be talking about the fiscal cliff for a few more days. It would be nice to have a vote today but don’t expect one because there needs to be some posturing and face saving.

The question is if the members of the House can put their egos on hold and do what is best for taxpayers and compromise. If they don’t vote until tomorrow, they can tell their constituents they actually cut taxes and not increased them (Congressional Con). The longer they drag the fight on over this bill the more frustrated taxpayers will get. I’m sure that most House members will expect them to forget that frustration with just two years before the next elections but I don’t think that will happen this time.

The common sense approach would be to pass this bill and then go to work creating bills for the spending cuts, debt ceiling and tax reform issues. But this is the House and sometimes their common sense loses to their egos.

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Thank You!

I wanted to take a minute to thank everyone for their support of Our Taxing Times in 2012.

I started the blog in April of 2004 not expecting a big following. I was doing it for me. It was a way to express what I was thinking about taxes and to explain to clients what they should know about income tax and the tax preparation process. It’s grown beyond my dreams.

Our Taxing Times has given me more than an outlet for my ideas and knowledge. I have learned so much from fellow bloggers. It’s kept me studying so that I had material to write about. It’s made me think about taxes in different ways. That’s always a good thing.

I didn't do this completely alone. I have a great audience who have shared my blog with their friends. I want to thank loyal readers for their “Likes” (Thanks Cindy and Valerie). And I especially want to thank those who read my posts and share them with others. This includes fellow bloggers and twitters that link and retweet my posts. I have not been good about thanking them. So, thanks to NATP (@natptax), Robert Flach (@rdftaxpro), Joe Kristan (@joebwan), Bruce McFarland (@bruce_taxguy), and David Fazio (@davidfazioea) for their retweets and including me in their buzzes and posts. And I’m sure that I have missed some people and I do appreciate your recommendations. So many times I’ve clicked on a Twitter link to find that it was my post. Thank you!

So, on to 2013. I hope everyone has a safe new year and a great tax season!

McIntire Tax Center - on Facebook - on Google+ - or Twitter @ mactax.

Tax's Perfect Storm

Yesterday was not a fun day.

It had nothing to do with it being the day after Christmas or that it was bitterly cold here. The problem was I couldn’t do my job. The reason is the fiscal cliff.

I received several calls from clients with questions I couldn’t really answer. I could explain about how the fiscal cliff is leaving the fate of tax rates, deductions and credits hanging. I could point out that AMT has expired and if it’s not extended by the end of the year the client could get a nasty tax surprise. But I couldn’t give them the answer they needed. All I could do for my clients was to give them a very rough estimate with the warning that there was a good chance I would be wrong. Not what clients expect of me.

The other problem I had yesterday, and to a lesser degree today, was that I can’t get motivated to get pre-season work done. If there is not AMT patch, the start of tax season will be delayed. Acting IRS Commissioner Steven Miller has been telling Congress that since November. Normally this time of the year, I would be working on my newsletter updating office documents and checking supplies. Some of that can be done without knowing what Congress will do. But I can’t get motivated. Why do it now when I’ll probably have until March to get it done?

Congress only has 4 days to do something about taxes (if they’re willing to work the weekend). And the situation has gotten more complicated with Treasury Secretary Geithner’s announcement that the US will reach our debt ceiling on December 31^st.  4 days to do what they refused to do earlier in the year and haven’t been able to do in the last few weeks. I’m not hopeful.

The House has spent most of the year on vacation. They’ve only worked about 100 days this year. I’d like to take a vacation for a few days to get away from the depressing tax news. It would be worth catching up missed work if a miracle happens and we get a compromise. But a vacation costs money I should save to the pay bills that will still come in if the tax season is delayed.

At least we’re getting a story to tell young preparers years from now when they complain something Congress has done (or not done). “You think this is bad, you should have been in business during the Fiscal Cliff of 2012-13. That was the tax world’s perfect storm.”

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