Staunch the Sweat (slightly): IRS Ideas on How to Handle an Audit

Accounting Web article

IRS agents and EA took questions in March on tips for handling the audit. Among the questions raised (and summarized responses): How can you adjust an audit which does not appear to be appropriate (ask the IRS to allow you to bring reocrds to an office rather than using a correspondence audit), who should ocme to an IRS office audit (bringing the client may shorten the audit period), what are collection options if the audit determines tax is due (options include offers in compromise and monthly installment plans), what options does the tax professional have if he/she does not understand or disagrees with the result (ask for a private conference, file for IRS appeals division), is a field audit more omission than an office audit (not always), is the Fast-Track settlement program available where I live (it presently is on a two-year test in Central New Jersey, Chicago, Philadelphia, St. Paul and Houston), can the scope be adjusted as the audit proceeds (yes) and can the practitioner offer to amend the return during the audit (yes, though the auditor may refuse if there is suspicion of fraud). Tax Talk Today has the full text for readers registered with TTT.

Nothing will fully alleviate the anxiety associated with a tax audit, but knowledge of these items combined with having the assistance of a competent tax professional can help somewhat.

Who Will Teach Future Accountants?

At present, about 120 (James Hasselback, U. West Florida) to 140 (David Leslie of William and Mary) students receive Ph. D's in Accountancy each year. Leslie estimates that this is well under half of the number needed to fill present posts. Additionally, 43% of accounting faculty are at least 55 (at 52, I am a virtual "spring chicken"). Among the reasons given for the limited number of Ph. Ds are limited resources at doctoral-granting institution (and the argument that preparing doctoral students takes away time for research) and the heavy opportunity costs associated with going through the doctoral program--the AICPA's Denny Riegle has criticized present doctoral programs for there overbearing length and encourages a four-year doctoral program.

The AICPA has created the Accounting Doctoral Scholars (ADS) program at a cost exceeding $16 million. The goal is to produce 30 extra doctoral students per year and allow them a living (if somewhat spartan) stipend of %30,000 per year while taking doctoral studies. The program will augment the KPMG Foundation's minority doctorial student program (through race is NOT a factor in the ADS program) and Ellen Glazerman of Ernst and Young hopes that it will provide additional auditing faculty and provide faculty with greater levels of practitioner experience.

It is hard to imagine accounting being anything but a high-demand field in the near future--even the worst recession in thirty years has only slowed, not stopped hiring of accounting graduates. However, with few if any high schools teaching accounting at anything significantly above the bookkeeping level, collges and universities MUST have faculty to prepare young men and women for accounting. I applaud the AICPA for this initiative.

Bank Bailouts for Bucks? or Watch Those Footnotes!

TARP Bailout recipients Goldman Sachs and Citigroup show first quarter profits, but critics assert, with cause, that [legal] accounting games were the reason for the rosy results. Goldman Sachs showed a $1.8 billion profit which was heavily based on changes in "mark to market" rules and a revised fiscal year. Citi's $1.6 billion income included a one-time gain from the opportunity to buy back its own discounted debt, relaxed valuation of impaired assets and trading income heavily augmented by "fair value" rules changes.

The bank results again demonstrate the importance of reading the notes to the financial statements and not only the statements themselves. Additionally, the value of blogs such as "Found in the Footnotes" and "Analyst's Accounting Observer" becomes clear when "barely legal" financial reports (accounting pornography?) are issued.

Catching Up, Part II--Return to Having a Life

Kay's Post on the Tea Party

Joe's Take on the Tea Party

While I was in hiding--[1] tax season ended. Congrats to all professional tax preparers,especially the tax bloggers.

[2] The Wandering Tax Pro (Robert Flach) resumed his blog. Welcome back.

[3] The 52nd Carnival of Taxes was published. I had a post on the House Small Business Committee challenging the IRS on increased frequency of audits.

[4] The "tea party" phenomenon occurred. While my opinion probably was closer to Joe's than Kay's (see links above), I can see where there would be suspicion that Republican leaders may have had a hand in the coordination of the parties.

Catching Up, Part I--The SOBIE Conference

Sorry for the long absence since last post--while at the eleventh Society of Business, Industry and Economics (SOBIE) Conference my dwelling had no Internet access. The conference itself has grown to include about 120 speakers from about 30 universities from about 15 states with topics including accounting, economics, taxation, logistics, management, ethics and marketing. I co-presented two papers with fellow APSU teacher Lesley Davidson (my wife Pam provided sufficient assistance with the ethics paper where she would have been a co-author had she wished)--one on continuing education for accounting ethics (we recommended four hours every two years but no special state-specific requirement) and an IFRS convergence paper (we recommended slowing down the process to allow the U. S. to learn from Canada's 2011 adoption to either tweak actual adoption as needed or even bail and stay with present GAAP if Canada's experience goes poorly enough). Among other paper topics that I attended included a paper on accounting disclosures by fellow APSU faculty Pennye Brown and Neil Dortch, a paper on betting on baseball by Taylor Stevenson (I presented papers with him at SOBIE the two previous years) and a paper on international aspects of transfer pricing. I enjoyed meeting Sam Cappel at the conference; I taught with him at Chattananooga 15-20 years ago and I got to introduce Lesley to James Hasselback of business faculty directory fame. Unfortunately (or perhaps fortunately) I again failed to find the annual SOBIE volleyball game.

Otherwise while in Florida: we had plenty of seafood (my wife came and did a shrimp boil plus we went to several fried seafood meals), we saw porpoises and a sunset on the beach, I got a minor sunburn from a midday walk on Wednesday and the weather was pleasant (highs in the 70s, low in the 50s, no rain until heading back towards Tennessee on Saturday night).

Comeback of the Ages

Today's Masters golf tournament featured not so much a great comeback as Angel Cabrera being able to take advantage of opportunities gifted him. The decade has had stirring comebacks, however, such as Boston's win over the New York Yankees when down 3 games to 0 and Liverpool's victory over AC Milan facing a similar 3-0 deficit at halftime of a Champions League final.

As impressive as these comebacks were, they cannot match what happened in Isreal many years ago. The recently-executed Jesus Christ disappeared from his grave, leaving followers initially in shock, then in amazement. The inspiration from this turn of events was such that 10 of his disciples were willing to die for their new faith, which would eventually spread throughout the world.

Eww! This Tax Credit [?] Stinks!

The U. S. Justice Department has sued four CPAs, 26 other tax preparers and another individual in a scheme to take phony tax credits based on purported sales of methane (the primary gas associated with "passing wind") from landfills. George Calvert and Gregory Guido of Florida are cited as being the initiators of a scam that saw $30 million in dubious tax credits. Additionally, a married couple from Texas and the Compro-Tax CEO were major subpromoters, with the Texas pair preparing returns claiming a total of nearly $8 million in credits and 54 Compro offices preparing returns including the credit.

There is no questions that the promoter and subpromoters had audicity to spare, but plenty of reasons to question their common sense. Did they really believe that these credits would go unnoticed?--especially when Congress is on a campaign to minimize the "tax gap."

Not a Good Year to Graduate if You Need a Job

The financial sector problems of last year and unemployment rates north of 8% in many states have meant that the entry level position job market faced by college graduates is the worst in many years. As David Maley's story illustrates, even students who would have been highly desired in recent years may have to modulate/go to Plan B for the time being. The accompanying "Tips for College Seniors" has good pointers; such as networking and making sure to make a real effort on each interview.

Having come out of a Master's program in 1982 (a similarily dreadful year for the economy) I have some sympathy for the graduates, whether graduate, undergraduate or high school. Accounting probably will do better than some disciplines, but laid off financial employees crossing over into accounting may take at least some of the better jobs and I expect that APSU's stronger 2009 graduates will not get as good or as many offers as the better graduates of 2008. In some liberal arts fields, it may literally take prayer to find a job related to one's course of study.

Puffing away Dollars: The New Tobacco Tax

The First Obama Tax Increase

Tax Blogger Reaction

An increase of 62 cents per pack of cigarettes took effect yesterday. AccountingWEB estimates that about 20% of Americans over the age of 12 will be affected by the increase and the authors, plus bloggers from a number of ideological perspectives have criticized the increase as being too harsh on the working poor, a violation of the "no new taxes on Americans earning less than $250,000" pledge and that the tax is another example of a "nanny state" mentality. Supporters argue that the $10 to $15 billion in revenues raised from the tax increase will help fund expand the State Childrens Health Insurance Plan by providing dental and mental health coverage.

I am of mixed views on this one. Tobacco growers in Kentucky, North Carolina and elsewhere take yet another hit to their livelihood and both the charges of breaking campaign tax promises and "nanny state" behavior ring somewhat true. Conversely, tobacco taxes, like lotteries, are comparably more voluntary than most taxes and like most nonsmokers, I am no fan of secondhand smoke.

House Small Business Committee Challenges IRS on Frequency of Small Biz Audits

After IRS Commissioner Douglas Shulman had described benefits of the American Recovery and Reinvestment Act (hereafter stimulus law) for small business owners--including improved NOL provisions, bonus depreciation and energy credits--members of the Small Business Committee, led by Chair Nydia Velazquez (D-NY) confronted Shulman with an increase in small-business audits in recent years. 41% more small businesses were audited in 2007 than in 2005 with companies with revenues of $10 to $50 million being particularly hard hit. Meanwhile, audits of companies with revenues exceeding $250 million actually had a significant drop in audits. Other lawmakers on the committee argued that IRS needed to provide more and better help to small business owners with tax questions.

The Linda Beales and Dan Shaviros of the tax blogosphere can legitimately argue that the small business problems looked at in yesterday's hearing occurred while Bush appointees were in the IRS. However, failing to fix concerns of small business going forward would be on the Democrats. One hopes that more lawmakers and top IRS officals will listen more carefully to the concerns of voices such as Nina Olson, past IRS tax onbudsperson.