A Less Tolerant IRS Claims Benefits Exceeded Costs

The Treasury Inspector General for Tax Administration announced that the Internal Revenue Service audited nine percent more tax returns in 2007 (vs. 2006) and that revenue from enforcement activities went up 22% or about $10 billion. Levies and collections on past-due accounts also increased during the year. This continues a trend which has been occurring since 2000; the likelihood of audit for an individual return has doubled during that period. Audits of corporate returns have been had a much slower rate of increase--and in fact have decreased in likelihood since the late 1990s.

I have mixed emotions about IRS audits; on one hand, it is important to protect honest taxpayers by looking for scofflaws; on the other hand, increased IRS auditing virtually by definition is an evidence of greater government power and as such at least a mild threat to American freedom. The ultimate cure--less government influence and control of the economy. Unfortunately this looks like a pipe dream; the Republicans sold out early this decade and may or may not have learned a lesson from 2006; the Libertarian party has no organization or power and does anybody really think that either the Democratic or Green Party have any desire to control in any substantive way big government?

FASB and IASB Cooperate to Catalyze Convergence

The Financial Accounting Standards Board and the International Accounting Standards Board announced a set of projects to speed up the 2006 understanding on convergence between US GAAP and International Financial Reporting Standards. The first set of issues are consolidations, fair value measurement and revenue recognition. Another set of issues such as defining the equity side of the accounting equation (liabilities vs. net worth accounts), earnings per share, joint ventures and income tax timing issues are also in the works.

Apologies to sophomore and junior accounting majors, the potential exists for a truly gruesome CPA exam section on financial reporting in the near future if applicants have to know both international and US GAAP. Add the coming XBRL tide and only a serious recession will be putting accounting majors into employment trouble any time in the near future.

Baucus Starts Senate Finance Work on Tax Reform and AMT Patch

Senate Finance Committee Chair Max Baucus (D-MT) announced a series of hearings for May through July on tax reform principles for the 2009 Congress. Baucus said that global competitiveness, tax impact on working families and the sunset of the early decade tax cuts in 2010 were some factors which caused the hearings to be needed. In May, the committee will consider individual taxation, including whether social-based tax provisions have been effective. June hearings will address non Subchapter C businesses and how the present pass-through approach for these businesses affect the economy. July hearings will look at multinational companies headquartered in the U.S. and how to balance equity and competitiveness. Additionally, Baucus intends to send forth a one-year AMT patch as quickly as possible.

Certainly getting the patch done before college basketball season starts would be a positive development and it will be interesting to see how the hearing progress, especially in an election year. Baucus seems to be wondering whether non-C businesses should be allowed to avoid double taxation; my guess is that if he does threaten to limit LLCs, Subchapter S entities, etc. that he will have a MAJOR fight on his hands. Finally, many taxpayers might be willing to accept a small loss in the number of socially-driven tax incentives IF the result is a simplified tax system; otherwise, any action on these tax incentives will flounder.

Snippets from Last Week

[1] To open, an apology to Ryan Ellis, Gina Gwozdz and Eva Rosenberg (Tax Mama) for overlooking them in my end of tax season memo last week. Congratulations are also in order for each of them.

[2] The conference went well. Lesley Davidson, Taylor Stevenson and I presented two papers: one on a management performance compensation plan for English soccer managers and a second on asset protection trusts (Tennessee recently became the tenth state to adopt this form of trust). XBRL is about to become HUGE, CPA firms with publicly-traded clients need to being sending seniors and managers to CPE on XBRL NOW! (if not earlier). Additionally, intermediate texts (and perhaps audit texts) need to add a chapter to cover the impact of XBRL. Finally, IFRS/FASB financial statement convergence also needs attention in textbooks, especially for intermediate accounting. The most disturbing presentation of the conference: an economist showed that housesholds with males born after about 1957 as primary earners and with income over $50,000 have a NEGATIVE return from Social Security (that means: you would be better off putting your Social Security contribution in a mattress than sending it to Washington). Marginally, but only marginally positive results (<2%), occurred if the household was dual earner or if woman (thanks to longer life expectancy) was the primary wage earner.

[3] Another snippet: a bank sign: "If you combine 'the' and 'IRS", you get 'theirs'."

75, Traveling and Tax Preparers Get to Have a Life

Happy 75th birthday to my dad, Don Meyer, today. Dad had an impressive career with the U. S. Agricultural Research Service and was more involved with my brothers and I than many men of his generation. He greatly enjoys fishing to this day.

I hit the road tomorrow to present two papers with co-authors Lesley Davidson and Taylor Stevenson at the SOBIE conference at Destin, FL. I hope to do some blogging about the conference during the week.

Finally, a major congratulations is in order for the men and women who complete tax season at CPA firms and other tax services tomorrow. Special congrats for tax bloggers Joe Kristan, Kerry Kerstetter, Robert Flach (the Wandering Tax Pro presumably resumes his electronic travels), Russ Fox and Trish McInytre.

Four (or Five) Steps to Rescue if the Tax Dragon Lurks

For those in serious tax trouble, Andrea Coombes of Yahoo! Finance offers a program to live to fight another tax season. First (and arguably most important), file an accurate tax return. Not filing simply means IRS ire, penalties and interest. Second, if the problem is only temporary in nature, consider whether it makes more sense to pay by credit card (3% IRS fee plus credit card fees) or use Form 9465 for an installment arrangement (6% annual interest plus anywhere from $43 to $105 basic fee (this fee is markedly lower if you use direct debit from your bank account). This installment arrangement works best if you owe less than $10,000 and can pay your taxes within three years. For those with home equity, a home-equity loan would generally be less onerous than owing the IRS. Finally, partial payment or offer in compromise agreements with the IRS may be a last resort if the taxpayer is in truly desparate circumstances or owes massive amounts. Partial payment is the less personally restrictive of the two approaches, but the offer-in-compromise does stop the clock on interest and penalties, according to Bill Wandel of tax-resolution specialists JK Harris.

Hopefully, nobody reading this post will ever have to go beyond step 2 (credit card vs installment arrangement) in paying their taxes. Nevertheless, some (hopefully no more than a few) clients may need the more dramatic home-equity, partial payment or offer-in-compromise approaches.

AICPA Tweaks Peer Review Standards

The American Institute of CPAs have revised/updated the standards for performing and reporting on peer reviews. The standards will become effective on New Year's Day 2009 and will go to more principles-based standards and a shorter peer review report. Peer reviews will have two categories: system reviews (quality control for the CPA firm) and engagement review (evaluation of workpaper quality on selected engagements) and participating CPA firms must be reviewed at least every three years.

It is probably a good idea to update standards such as this periodically. One hope that the shorter reports will improve readability and breadth of readership without reducing the quality of the peer review report.

Sailing Through the Carnivals

Carnival of Personal Finance 147

Carnival of Taxes 34

For the first time in months, I published in two carnivals this week with "Six...Ravage Retirement Resources" in the Carnival of Personal Finance and "AICPA and USA Today Team Up..." in the Carnival of Taxes. Thanks to Moneyning and Don't Mess with Taxes for including my posts.

On a related note, I do intend to slightly expand my personal finance posts to one or two per month. During the next few months, I hope overall to have two to three topical posts per week between accounting, personal finance and taxation.

Taxes Drive People BEYOND Drink

Tax Preparer Stopped from Conquering Killing Fields

Pit Bull vs. IRS

Apparently another grueling tax season has claimed the sanity of two Californians. Lisa Blechman recently apologized to IRS Agent Ruth Seidman for siccing two dogs, one a pit bull, on Seidman as she posted a summons notifying Blechman's husband that his business would be audited. Blechman was subject to two years probation. Meanwhile, Yasith Chhun of Long Beach was arrested on a variety of charges for plotting to overthrow Hun Sen, present Cambodian prime minister and one-time officer under Pol Pot. Chhun, a tax preparer (but not a CPA), believed that he would be interim president after the intended revolution and expected the U.S. government to support his efforts as a way of ending human rights abuses. Chunn's trial recently began in Los Angeles.

While understanding that a long season of tax preparation COULD push someone over the edge, the fact that April 15 is less than 10 days away should take at least some stress off. Would have been interesting in the dog vs. IRS employee scenario to see which was the more tenacious.

Six Minefields Which Can Ravage Retirement Resources

Katy Marquardt of US News sets forth six dangers which can leave a retiree singing the penniless blues. The points include [1] lack of retirement plan (slightly less than half of those surveyed by TD Ameritrade had a written plan), [2] underestimating the likely post-retirement lifespan (close to 78 for all retirees, probably 80 for women retirees/widows of retirees), [3] underestimating spending (during the healthy years, discretionary spending increases may offset spending decreases elsewhere--don't plan on a major decrease in spending after retirement), (4) unusual expenditures (perhaps bailing out a relative or major house repairs), (5) ignoring the rapid price increases in medical care (at the very least, plan on Medigap insurance), [6] ignoring inflation (which has been more of an issue recently than in many previous years).

Ms. Marquardt's list appears to be well-thought out and worthy of consideration. One option to consider, ask your banker or accountant if they know of a financial planner which you can afford.

Perfect Score from PCAOB

Major regional CPA firm Clifton Gunderson, headquartered in Milwaukee, announced that received a report of no deficiencies in the firm's reviwed audit engagements nor any in its internal control system. Anita Ford of Clifton Gunderson stated that the PCAOB process were helpful in continuous improvement of the audit process. The PCAOB inspected Clifton Gunderson in mid-August and communicated its findings to the CPA firm about a week and a half ago.

Major congratulations to Clifton Gunderson; some of the Big Four inspections did not go anywhere near this well.