Our Taxing Times

Halfway Update

Tax season is halfway finished! Now before you go questioning my math, let me explain. Because of my particular client base, I have found that by February 15^th I have taken in about half of my returns. (Notice I didn’t say finished.) The actual percentage changes each year depending on the weather and when W-2s are released. While I’ll see fewer returns come in each day from now on, they’ll be more complex.

The season, so far, has been crazy because of the refund problems. The first problem was fraud filters that were too tight and were catching everyone. Once that was fixed, the deluge of returns didn’t bother MeF (Modernized e-File) but clogged up processing refunds. The hardest hit were taxpayers whose returns were accepted Feb 2, 3, 4, or 5. Many of them are still waiting for their refund in the IRS processing clog. It has to be frustrating for them since some taxpayers who filed last week now have their refunds.

There were extreme problems with at least one small tax chain and a couple of interesting bad preparer stories (one involving armed robbery) I’ll catch up on tax issues and blogging soon. But for now, I have a pile of returns to finish.

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

Conflict of Interest

Did you get a divorce or spilt with a significant other this year? Did you end a partnership or S-Corp? If you did either of these or one of several tax changing events, you might have to look for a new tax preparer.
Let's look at a divorce or split. John and Jane have been married for 10 years, have 2 children and they have used George to prepare their taxes for years. But in 2011, they file for divorce which is finalized by the end of the year and each needs to file their taxes. Jane comes in to see George and she wants the best refund she can get. He does the interview and files her return. Then John comes in to have his return prepared. But his answers are different than Jane's and the bottom line is that both are trying to do claim the same children, file as Head of Household, or use the same expenses for deductions. What ever the problem, George has a big problem. He can't tell John what Jane has already done nor can he call her and tell him that he heard a different story from John. And if he files the return as if the only side of the story he knows if John's, he could have a mess to clean up later-on both sides. Also, any tax advice he gives Jane many not be in John's best interest and he is suppose to be working for John too. What should he have done? George should have turned John away once he prepared Jane's return. Or, told Jane he couldn't do her return if he was planning on doing John's return.
If you've just closed a business and both you and your partner/co-shareholder use the same tax preparer, you might want to take conflict of interest into account when you take care of your taxes. This is especially true if there is any contention between business owners.
There are times when one preparer might be able to help both sides of a divorce or business split, but right after the split or if the situation remains hostile is not the time. You're paying them, you want to make sure they are working in your best interests and not putting someone else first.

 

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

Client Games

This post is a little self serving. (I need a post and I need to vent make a point.)

It’s not all about you. I know you want your return prepared and/or filed, your question answered, or one of a dozen other things people want at tax time. But you have to remember that you are not the only one wanting something from me. I have a receptionist who will help you as much as she can so please let her. But the bottom line is there are still just 24 hours in the day and I need to eat and sleeps so don’t play games.

• If you are told there are no appointments available for today, there aren’t. Asking to talk to me or have me call you back won’t get you in any faster.
• Leaving a return as a drop off doesn’t give you an “appointment”. I work drop offs as I have time and since I usually have questions, they take longer than waiting a day for an appointment.
• I return calls and e-mails as I can. As I can. Calling back in 15 minutes and harassing my receptionist because I haven’t call you back is not cool.
• Calling and asking how to do something in Turbo Tax is also not cool. I’ve never touched that program and can’t help you. The same for wanting info off last year’s return for the preparer down the street. I gave you a copy of that return. I also don’t want to hear you grip about their price next year. You wouldn’t have paid that price if you had waited a day.
• There are times I am here alone and you will have to wait until I can help you. Please don’t interrupt me with another client thinking you can speed things up. It’s rude.

Every tax preparer is different. Some are swamped now and empty 2 weeks from now. Others really won’t get busy for another week. Some want appointments and others can take walk-ins. Some have lots of staff others are one woman offices. But being pushy and trying to get around the system probably won’t work. I know it won’t in my office. Remember that squeaky wheel saying? No oil for you here.

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

Wait For It

It’s almost the end of January and across the country taxpayers are haunting their mailboxes and payroll departments in hopes that those pesky W-2s and 1099s will magically appear. The closer to the end of the month, the more frantic they become. Their friends have filed but they are still waiting. So, they make the decision to try to file without everything they should have. Noooooo!

Of course, we’re talking about taxpayers who are sure they are getting a refund. I’ve never seen anyone rush in when they know they will be paying a balance due.

If the taxpayer uses a paid preparer, especially if they use the same preparer each year, they might find themselves making another trip to the office once they really get their form. Most tax software can be set to bring forward W-2 and 1099 info. I use it as a double check against what the client brings in to me. It’s easy to forget an employer where you only received one pay check in January. When that happens, I can estimate the return results, but the client has to come back when they get that form.

What happens when the taxpayer actually files a return without a form that should be reported, whether they forgot or deliberate left it off? They should file an amended return including the missing information. This takes the 1040X form. And no, this is not an alternative to waiting for all the documents they need. While it might result in a refund, there is a very good chance the taxpayer will have a balance due and have to pay back part of the refunds they received. Also, if the taxpayer waits until after the due date for that year to file the amended return, they could be subject to interest and penalties.

If a taxpayer leaves a W-2, 1099 or other income reporting form off their tax return and doesn’t file an amended return, the IRS will catch the omission when they run their matching program. Since the IRS gets copies of all the informational forms, they can create a basic tax return for the taxpayer and check what is on the taxpayer’s return against their return. When the incomes don’t match and results in more tax being due, a letter will be issued asking for the missing tax and penalties and interest.

It’s frustrating to wait for all your W-2s and 1099s when everyone around you is talking about their refund. But it’s less frustrating than coming up with the money to pay Uncle Sam (with interest and penalties) when your rush catches up with you. Employers and payers aren’t required to have those forms mailed until January 31^st. Notice the word mailed. You do have options if you don’t receive a form you should have but they aren’t available until after February 15^th and only if you have contacted the employer/payer.

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

And An EA Is What?

It’s that time of the year for lists about selecting a tax pro and getting ready to have your tax return prepared. The frustrating thing for me is how Enrolled Agents tend to be ignored in many of these articles. You’ll hear the terms CPA or accountants used a lot but the phrase “Enrolled Agent” is used considerably less. It’s not surprising since there are fewer EAs than CPAs so few writers know about them. And when they do now about EAs they tend to just throw out the phrase with all the other tax pros.

What is an Enrolled Agent?  "Recognized to practice before the IRS." That is the official IRS phrase to explain the EA designation.  It is an IRS program which gives tax professionals the same rights and privileges as certified public accountants or lawyers. An enrolled agent can represent their client at all administrative levels of the IRS and negotiate for that client. Since they are nationally registered, an Enrolled Agent can appear before the IRS in any state.

Luckily, most taxpayers will not need the representation ability of an Enrolled Agent. For them, the significance of an Enrolled Agent status is based in the testing and continuing education required to obtain and maintain the EA status. In order to receive the Enrolled Agent designation, a tax preparer must take and pass a 3 part exam covering all types of tax returns and IRS rules and procedures (or be a former IRS agent/officer). Once the exam has been passed, the IRS must approve the Enrolled Agent application. The applicant is subjected to a background check to make sure they are not a felon and they are up to date on all their tax obligations. If they are accepted, the tax professional is enrolled for 3 years (renewable) and is required to take 72 hours of continuing education in taxation during the 3 years and maintain professional standards. If either of these requirements is not met, the tax professional could lose their Enrolled Agent designation. As a comparison, the test for the new Registered Tax Return Preparer designation has only one part covering basic 1040 tax returns and they only need 15 hours of continuing education in tax a year. Accountant, CPA and attorney rules vary by state. While they may be tested and have CPE requirements, taxation is only part of their testing and education.

An Enrolled Agent can be harder to find because there are fewer than CPAs or accountants. And being an EA doesn’t mean that one is your best choice for a preparer. Remember, there are other factors to consider when choosing a new tax pro. But an EA can be a solid choice for a tax preparer and to help you with a notice from the IRS.

RAL Bounce - edited

I just received a letter from Instant Tax Service insisting that I correct or remove this article. Since I think I'm making an important point about finance companies trying to take over the RAL business, I have chosen to copy their letter into this post. I haven't seen the corrections to my sources he mentions. It was signed Todd E Bryant, General Counsel, Instant Tax Service.

Ms. McIntire,

My company just became aware of your recent blog post.  Please be advised that the information upon which your post is based is inaccurate.  We have also spoken with Phil Drake, as well as the check casher that posted the press release on Marketwatch. The check casher will be posting a retraction/correction shortly, and Mr. Drake will also be issuing a correction.

The checks were NOT returned for NSF, but were returned for "referred to maker" because the account had been the victim of some fraudulent activity.  The bank made Tax Tree aware of the issue on Friday, January 6 and locked the account down.  The issue was resolved on Tuesday, January 10, and the account was unlocked.   Unfortunately, all checks presented in the intermediate period were initially returned unpaid,  but all have since been made good, and all returned check fees have been credited back to the damaged parties.

Moreover, I note that your post mistakenly refers to the checks as RAL checks.  If you carefully read the sources you have cited, you will note that the checks were not RAL checks (filing season hasn't even started yet), but were pre-season loans given to potential customers of Instant Tax Service.

We ask that you correct your post or remove it immediately.  We do plan to take legal action against parties who recklessly spread misinformation.

My jaw dropped after reading a tweet Friday evening. The tweet was from Phil Drake of Drake Software. The message was simple, "RAL checks from an Instant Tax Office issued by Tax Tree BOUNCE." he included a link to a Marketwatch article. There wasn't much more information but that was enough. A bounced RAL (Refund Anticipation Loan) check that is something I'd never heard of before.

I've been working with bank products since they were rolled out nationally in 1990. I've seen taxpayers having problems getting a bank to cash the checks but never seen or heard of them actually being returned for insufficient funds once they were cashed.

But 2012 is a whole new RAL world. With true banks barred by the FDIC and OCC (Office of the Comptroller of Currency) from offering loans, it looks like the smaller finance companies are thinking taking over the business. Companies like Tax Tree. But do they know what they are getting into? I understand that the IRS's special MeF test meant that a few checks were issued early. But these checks bounced 1 business day before Tax Tree knew checks would begin to be issued. E-filing opens on Tuesday. With MeF's quick acknowledgements, Tax Tree had to know they would be writing checks then, Wednesday at the latest. Yet they didn't have the money in place.

How does this fall out? First, I would say taxpayers will have a harder time cashing their RAL and RAC checks. The banks and check cashing places will hear of the problem quickly and become much more cautious about cashing these checks from any finance company. When clients can't easily cash their RAL/RAC checks, they'll go back to the preparer. And the preparer will be the one dealing with the anger of clients who have refunds they can’t access. Fees all around will go up. But RALs won’t go away as long as taxpayers can find someone who will advance money on their tax refund.

Refund Anticipation Loans were a mis-guided idea that were abused by some taxpayers, the banks involved and some tax preparers. They aren't going away. We  just traded a few nationally regulated banks for thousands of small loan companies and multiple state laws.

2012 Newsletter.

If anyone didn't get a copy of my client newsletter, I've posted it on my Cloud App account. And if you're not a client but would like to see what I did, help yourself. The link downloads a pdf.

2012 Newsletter

Happy Birthday MTC!

It was January 3, 2003, 9 years ago today that I opened my own office (It was McIntire Income Tax Center then). I had worked for someone else for years but his business changed and I was looking for a new job. I was playing with the idea of setting up my own office when I saw this little snowman. It made me giggle and I loved the feeling of freedom. The inscription on the bottom is from Virgil, "Fortune sides with him who dares."

Being independent has brought lot of hard work, frustration, good clients, and independence. But no regrets.

Here's to a new season!

Finding A Tax Preparer.

Tax time is approaching fast and taxpayers are beginning to think about filing their tax returns. Some know if they will be doing it themselves or they have a tax return preparer they intend to stick with. But if you are looking for a tax pro, I have a few suggestions to make the process easier. It’s always amazed me how many people walk into my office and hand me their W-2s because I was the first open office they found. You are entrusting a lot of personal information to a stranger, its worth a little time and effort to check that person out.

What do you need? Take a step back and think about what you need in a preparer. How complex is your return? Be honest. I don’t know how many times a caller will tell me they have a simple return and it turns out that the return was very complex. Look at a prior return. And look not just the forms added to the 1040 but line entries.

How much can you spend? Notice I asked “how much can” not “how much to you want”. Come up with a reliable idea of what you can spend. You may have to spend much more but having a target many protect you from a good talker up-selling later in the process.

What other requirements do you have? Is location an issue because of transportation? What about the times you’re available? Are there accessibility or language issues?

Who is recommended? Once you have an idea of what you need, ask family and friends for suggestions. Who do they use? Do they recommend them? Get two or three possibilities if you can. Learn about each preparer from your family and friends and then supplement that with info from ads and the internet (websites, FaceBook, Google+). No recommendations, then work from ads and internet to create a starter list. Be wary of websites though that list preparers. Some are built from yellow pages info and list most everyone. Other sites are promotional not objective. The preparer signs up with the website and can edit their profile and sometimes edit reviews too. Use the info from these sites for general knowledge but not to make a final decision. Also look for problems the preparer might have had. Are there disciplinary issues filed with regulatory organizations  (ABA, state CPA organization, IRS)?

What does the preparer have to say? Once you have a short list and an idea who each preparer is, give them a call and ask some questions. Besides giving you information to make a decision, you can get a feel for the person and the office. My suggestions are below but you probably have questions of your own to add to the list. And watch out for expectations. Just because your previous preparer did something a certain way doesn’t mean that another preparer will run their office the same. Please see this post.

• Are they taking new tax return clients?
• What is their designation? Are they an EA, CPA, or general preparer? The differences are discussed here. By the end of 2013, all preparers will be licensed but currently a great preparer may not have any initials after their name.
• What experience do they have? How long have they been preparing returns and what training have they had? What tax organizations are they a member of?
• What tax returns do they do? Some preparers don’t do complex returns or returns with EITC or certain forms.
• How do they charge? Any idea on average cost? What payment options do they have? Do they bill? Please note: if they charge by the size of the refund, hang up. That is illegal and could mean that they are falsifying the return to generate a higher fee.
• What are their hours? What about after April 17^th? Will they be available if you need them?
• What other services do they offer? Some offer refund programs others may sell investments or insurance.
• What are their office procedures? Do they require appointments? Do they take drop-offs? Who will actually be preparing the return? How long will it take to get your completed return? What are their backup procedures?
• What guarantees do they have? What happens if you get audited? What are the extra charges?

These and the questions you came up with should help you make an objective and informed decision about a new tax pro. I doubt that you will find your "perfect" preparer but this process should show you when you can compromise and when to stand firm. You're not looking for a friend but a professional offering a service that you need. The goal is to find a good addition to your tax team. The next step is getting your tax return prepared. Good luck!

 

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

2011-The Review

It’s a beautiful but windy winter day and I’d rather be out and about but I did want to do a quick end-of-year post. What I remember about taxes and the tax business in 2011. If you want more info on anything I mention, just search this site using the search widget to the right.

 Tax Laws

Congress spent the year posturing for the cameras and running for re-elections. There was little done in the way of taxes. They did manage to pass a 2 month extension of the payroll tax cut only because of public outrage at their fighting. The special committee on tax reform couldn’t come to any agreement so we are no nearer to real tax reform. They did manage to repeal the 1099 requirements for small businesses. We need to do something about the tax gap but they has to be a better way.

IRS Changes

With Congress playing their partisan games, the IRS didn’t have to worry about any last minute changes to the tax forms. They did keep busy changing forms to deal with previous tax revisions. We got a new Form 8948 to report capital gain sales and the Schedule D was changed to work with the new form. The Schedule C, F and E all now have lines to report 1099K income and to check if any expenses claimed are matched on 1099s (or should have been). The IRS has also been busy increasing penalties for not timely filing these forms. Speaking of penalties, the IRS is cracking down on preparers and EITC. Besides higher penalties for not doing proper due diligence on EITC claims, tax pros now have to file a completed EITC checklist (Form 8867) with the tax return. Modernized e-File and mandatory e-file continue to be implemented. The IRS will not be offering tax refunds on debit cards in 2012. The program was canceled because of lack of interest for the program in 2011. I still think there would have been more interest if the program was offered before January. Finally, the IRS is interested in real time processing of tax return. That means holding off processing returns until most of the 1099s and W-2s are submitted.

Preparer Licensing

Tax preparer licensing was a little bit of a roller coaster this year. The process continued with a few back steps. The minimum competency test is now available after being postponed a couple of times. Anyone who has taken the test still doesn’t know if they passed since the IRS wants to review the results. Fingerprinting of preparers is on hold while the IRS works out some issues. After the news that over 300 current prisoners were able to obtain PTINs most by lying about their criminal record, I think fingerprinting will be back once logistic issues are solved.

Tax Business

The business of tax preparation saw the end of RALs. While Republic Bank will still offer the refund loans until the end of April 2012, it was the FDIC’s banning of the programs back in February that really ended the programs. While the loans are gone, the banks have been allowed to continue their other refund program. The big tax prep companies really have been trying to get bigger. H&R Block tried to buy Tax Act tax software but was stopped by the Department of Justice amid monopoly concerns. Intuit has been aggressively wooing tax pros to their software and/or trying to hire them as customer support for their Turbo Tax software. We’re starting to see more ancillary services using the “Cloud” to help tax offices manage client info securely.

Our Taxing Times

2011 has been a good year for the blog. Counting this post, I will have written 186 posts which received an average of 74 page views a day. I may have gone overboard a little with the social media but I think they are part of the reason my readership is up.

I’m looking forward to 2012 and I have several posts planned before I get tied up in tax returns.

Have a Happy and Safe New Year!

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