Tuesday, June 30, 2009

Olson: Don't Look for Mercy Here, Scofflaw Tax Preparers

In her annual report to Congress, Taxpayer Advocate Nina Olson said that she would work with the Inspector General for Tax Administration to develop regulations for presently unregulated (commercial preparers who are not attorneys, CPAs or enrolled agents) tax preparers. Olson scolded these preparers for inaccuracy, lack of sufficient diligence and even taking unreasonable positions. She asked that unregulated preparers should be tested and required to take continuing education (in effect, requiring something comparable to enrolled agent status before being permitted to prepare tax returns commercially) and that unregualted preparers who are regularly sloppy or overly aggressive should be pursued by IRS enforcement officals. She also advocated a specific identification number, similar to an employer number, for commercial tax preparers. Additional priorities include additional study (and potentially increased access to) the offer-in-compromise program, better administration of refundable credits and better telephone service to taxpayers.

I certainly have no quibble with the additional priorities and Ms. Olson has earned the right to be taken seriously when it comes to her support of regulation for tax preparers. There is a theoretical argument for letting states regulate non-ABA/CPA/EA tax preparers; there is also a "interstate commerce/tax gap" justification for increased federal regulation. One of my biggest fears for increasing federal regulation, brought out in a previous post, is that regulation initially claimed to be directly at unregulated preparers would be used to leverage additional regulation of EAs and CPAs, a scenario which I DEFINITELY would not support. Ultimately, in my opinion, Congress needs to make it clear whether only EAs, CPAs and attorneys should be permitted to be commercial tax preparers before the proposed IRS regulations are put into place; in other words, the legislative body should speak before the administrative/executive body regulates.

Wednesday, June 24, 2009

Update on the Work Opportunity Credit (Form 8850)

  • Form 8850 Instructions to qualify for credit
  • .

  • Publication 954 on the Work Opportunity Credit (uses Form 5884)

  • Form 5884 to take credit

  • The Internal Revenue Service has just provided guidance on an expanded Work Opportunity Credit for employers. Form 8850, the form which qualifies employers for the credit, should be filed with the appropriate state workplace agency (SWA) instead of the IRS (exception: if ONLY Hurricane Katrina-affected employees qualify; the employer need not submit Form 8850 but must maintain satisfactory documentation of the employee's qualifications). Changes for 2009: Hurricane Katrina status is continued to August 2009 (four years of date of Katrina landfall), new categories have been added for military veterans which have received unemployment compensation and "disconnected youth" (a summarized definition would be a 16-24 year old who does not have a diploma and has been out of school and out of work of at least minimum wage pay for at least six months--more complete definitions are available in the 8850 instructions linked above). Qualifying groups include people eligible for Part IV-A of Social Security, qualified military, qualified ex-felon, 18-39 year old resident of an Empowerment Zone, Renewal Community or Rural Renewal County (defined at length on pages three and four of the 8850 instructions and probably includes 1/3 to 1/2 of the country), referral of vocational rehabilitation (generally a disabled employee), summer youth employee, SNAP (formerly called food stamps) recipient, long-term family assistance recipient, Hurricane Katrina employee, unemployed veteran (this adds unemployment compensation recipient to the food stamp recipient or disabled status included in qualified military) and disconnected youth. The credit generally is 40% of wages up to $6,000 per first year employee if the employee worked at least 400 hours, 25% of wages up to $6,000 if the employee worked 120-399 hours with maximum wages limited to $3,000 if the employee qualifies solely as a summer youth employee; there are also opportunities for a 50% credit of certain second-year wages if the employee qualifies as a long-term family assistance recipient.

    The Work Opportunity Credit, while perhaps not perfect (it does add to complexity, after all) is, in my opinion, a relatively good tax incentive. As a tax incentive, it can be adjusted or eliminated more quickly than direct spending, the incentive does provide employers a reason to hire people that might otherwise have difficulty being gainfully employed and the empowerment and renewal zones in many cases (such as the Mississippi Delta and the Alabama Black Belt) are areas of dreadful poverty and despair which can use whatever help they can get in providing employment and business activity (and corresponding tax revenue)toward covering the costs of needed social services.

    Tuesday, June 23, 2009

    Is There an Honest Man (or Woman) to Be Found? How Cheating Damages Capitalism

    Steven Malanga of the Manhattan Institute and Real Clear publishing (home of Real Clear Politics and Real Clear Markets) tells the story of New York Times Edmund Andrews as an illustration of the increased acceptably of cheating and how a culture of cheating neccessarily. Andrews tried several techniques of dubious moral fiber to acquire a house in the middle of this decade. but Malanga points that lender American Home Mortgage was equally at fault for enabling and even encouraging Andrews' behavior. Malanga also contrasted that America's willingness to turn a blind eye to cheating to sociologist Max Weber's experiences 105 years ago when fraud was considered not only ethically wrong but a failure to live up to one's duty.

    I still believe that capitalism is the best economic system that imperfect humanity is capable of and that even government regulation of capitalism must be viewed carefully to compare costs and benefits (an example of where such benefits exceed costs would be reasonable "MPG" standards for automobiles). Having said that, capitalism has little or no moral underpinning in and of itself; the same capitalistic system which has created great choices for consumers at grocery stores is also capable in a morally unsettled environment of rewarding child pornography. Has our choice to extract God from much of public discourse come home to roost? You make the call.

    Thursday, June 18, 2009

    Cap and Trade: More Impact on Accountants than You May Realize

    Intentions of the Obama Administration to reduce pollutants, perhaps through a "cap and trade" tax as well as international meetings on carbon in Copenhagen later this year and the Western Climate Initiative creates a need for businesses (and accountants) to better understand the ramifications of costing carbon-based pollutants. Some specific issues which deserve consideration: increased costs of high pollutant levels (can this be passed on to customers?), integrating "carbon costs" into business strategies (potentially including use of tax incentives to reduce carbon emissions), understanding and assessing risks (examples include price risk, credit risk and regulatory risk), impact on capital budgeting (including purchases of fuel), usage of hedges and carbon offset futures, choice of accounting policies and disclosure of "carbon costs," tax impact of accounting choices well and deductibility of emission taxes, valuation of carbon "assets" (such as options to purchase carbon credits) and risk of fraudulent reporting of carbon costs and "carbon assets and liabilities."

    I am aware that with XBRL, IFRS convergence and "mark to market" that accountants need another complicating responsibility like they need a hole in the head, but Obama definitely is pushing for green initiatives and the long-term question here is more likely to be how quickly an accounting scheme can be developed and whether disclosure will on financial statements or in notes rather than whether disclosure will be required. Looks like there is opportunity for tenure-track faculty in accounting to get some publications and presentations by working on systems for reporting costs of pollutants and incorporating these approaches into an accounting model. Perhaps the ISO 14000 series may be of value here.

    Monday, June 15, 2009

    Libertarian Business Group Mounts Court Challenge to SOX

    A small Nevada CPA firm, Beckstaff and Watts and the conservative/libertarian Free Enterprise Fund has received certarori to present their case against Sarbanes-Oxley to the U. S. Supreme Court (a Court of Appeals previously ruled in favor of SOX and the government). The Free Enterprise Fund argues that the Public Companies Accounting Oversight Board (PCAOB) violates the separation of powers clause of the Constitution because the President does not appoint members and Congress does not control its purse strings. The court challenge has been in process for a number of months.

    While I have a degree of ideological sympathy for the FEF, their case has virtually no chance of success; moreover, I would not be shocked to similar future legal actions being tagged as "frivolous." The history of tax protestors using "gold standard" arguments and similar literalist legal actions have had almost no success in recent decades. Like it or not, the PCAOB is here to stay; it is even possible after last fall's fiscal fiasco that GREATER regulation of the auditing industry may be in the future.

    Wednesday, June 10, 2009

    90th IMA Conference: Day 4 and Out--Leaders in Government and in Business

    The final day of the IMA conference started with a presentation by Lindsey Piegza on Economic Outlook: Foundations for Recovery. She looks at the present situation and says that the primary reason for slight improvement in the economy is a massive increase in government spending; unfortunately, she warns, this is not sustainable unless the private sector gets healthier. She believed that the deficit and debt may be a political issue in 2010 and must be addressed no later than 2011. She pointed out that housing prices were still weak and that this would dampen realistic short-term prospects for consumer spending growth; even more damaging would be a increase in long-term interest rates in the near future. She sees deflation as possible in the second half of this year and believes that inflation is a danger in 2012 (about two years after my projected risk of inflation). While holding out some hope for a solid recovery; she seems to believe that a short recovery would be followed by a return to recession. During question period, she seemed to support an investment tax credit or similar stimulus to investment and encouraged businesses to try to effectively pursue exports.

    The final IMA conference session was on developing leadership. Peter Brewer and a panel of three: young professional Paula R., mid-career accountant Audra (sp?) M. and "seasoned" financial manager Paul C. Paula emphasized development of "soft skills" such as interpersonal relationships and teaching/mentoring as a great aid to her career. Audra, the middle panelist, focused on determining and prioritizing responsibilities and on being perserverant in a hectic workplace while Paul focused on being a "change agent" and having and articulating a vision. There was plenty of opportunity to ask questions of the panelists, but I waited until after the session to ask Paula about the lack of blogging in managerial accounting. She said that the Young Professionals in Chicago (her hometown) had developed a Linked Up (similar to Linked In) page and provided that as evidence that young managerial accountants were taking electronic communication outside of their business responsibilities seriously.

    In my opinion, best sessions of the conference were: [1] Why Smart People Do Really Dumb and Unethical Things by Marianne Jennings, [2] Cowboby Ethics by James Owen and [3] Economic Outlook: Foundations for Recovery by Lindsey Piegza. The CMA and its value (Monday) wins a close three-way battle for best concurrent session. Biggest strength of the conference were the general sessions (with the brown bag lunch close behind); biggest frustration was no direct notification that tickets to the U. S. Mint Tour ran out before I came up. Good luck to the IMA next year in Baltimore.

    Tuesday, June 09, 2009

    90th IMA Conference: Day 3--The Very Good, the Not-so-Good and the Quick (Books)

    Another big day at the Denver conference--tomorrow will be shorter and the final day. My first session today probably was the best to date, Marianne Jennings of Arizona State did a very good (if somewhat convicting) session on ethics in business. She highlighted nine danger points regarding ethical behavior after citing dozens of businesses and government agencies who had ethical failure. Dr. Jennings included nine cautions: watch the pressure and stress; watch the rationalizations, watch the fear that silences; watch for complacency; watch out for conflicts (best option: don't do it; next best: disclose); watch and enforce rules; watch out for the intoxication of innovation; watch out for the belief in goodness (hello, Sam Antar) and watch out for ethical complexity and fog. One of the sobering parts of the talk is how EASY it is to lapse into subethical behavior and the equal ease of rationalizating or using euphemisisms for lapses.

    Lunch was a chicken dinner similar to many served before with the luncheon speaker being Richard Lamm, former Colorado governor. Like David Walker yesterday, Gov. Lamm was no herald of cheer, warning that increased taxes, reduced government services and tough political decisions were inevitable. An interesting sideline--Gov. Lamm pointed out that while increased life expectancy was good for individuals; it complicated public policy. Had a good conversation with a CFO of a Sault Ste. Marie, MI fabricator about what can be done to make teaching of managerial accounting more relevant to the workplace.

    I chose a seminar on Quick Books mistakes for the early afternoon session. Pam Newman unquestionably knew her stuff and probably should have easy enough to follow, but a combination of very limited familiarity with Quick Books and a post-luncheon slump meant that I was unable to get full value out of Ms. Newman's presentation.

    The late afternoon session was somewhat disappointing to me--at least part of the reason is that I found the title of "Nonfinancial Role of the Finance Professional" somewhat misleading--a better title in my opinion would have been "Understanding and Improving Information and Document Flow." The speaker (David Giannetto)clearly knew what he was talking about, but I did not find him easy to understand and the pace limited question opportunities. Additionally, I think of nonfinancial factors as being things such as employee morale, human capital development and community reputation. By contrast, the speaker concentrated on information flow issues; certainly legitimate as a nonfinancial factor but far from the only such factor. Nevertheless, practitioners with better IT backgrounds may have found this seminar of value.

    Monday, June 08, 2009

    90th IMA Conference: Day 2B--Conflict Resolution Studied, Central Illinois (and nearby MO) shines

    We reconvened at noon today with "Brown Bag Luncheons." Conferees had a choice of three box lunches (beef, turkey or vegetarian) and about 50 topics. I went to "Best Practices of IMA Student Chapters;" all other participants were in higher education institutions near the Mississppi River about 100 miles from each other and between Quincy, IL and the Quad Cities. Four students--all from Western Illinois and in competition for "Best Student Chapter" and two faculty (Dell Ann Janney was the coordinator) from a small college in Canton, Missouri (Culver-Stockton) obviously had successful IMA chapters and were more than willing to share tips which had helped in their success (fund-raising, volunteer projects, national student competitions and officer succession). Additionally, the coordinator passed out guidelines for student chapter excellence; something that at best I previously had only been vaguely aware of.

    About six concurrent sessions were available at 2 pm and I went to "Effective Conflict Management Strategies." Presenters Kym Anderson and Susan Weiss broke us into groups of 4-8 people and had us answer three questions: what created conflict at work, why did these causes exist and how was conflict addressed? They had a matrix of sorts (looked more like an box with an "X") with five conflict approaches:
    avoid; accomodate; compromise; compete (or authoritatarian) and colloborate. Each approach had uses and problems--even collaboration, which sounds like the best in theory, is too time-consuming for trivial issues and urgent issues. The seminar was reasonably good but not the best of the programs.

    At 3:45, I attended a panel discussion on the CMA and how it could help a young accountant's career. The all-star panel included moderator Dennis Whitney, Jerry Van Os of Westminister University in Utah, Kathy Fitzpatrick of Johnson and Johnson (yes, that J&J), Javier Canos of Racetrac (a southeastern gasoline chain) and new IMA CFO Doreen Reemen. The panel indicated the advantages which they felt they received from earning the CMA--one slide indicated that CMAs earn 20-25% more over their careers compared to accountants without certification. I posed a question about whether the CMA could help with future changes in accounting and the best answer came from an attendee who was on the Illinois State faculty (name Harlan Fuller) who said that studing for the CMA sharpened one's study skills and prepared accountants to research changes in the field.

    90th IMA Conference: Days 1B and 2A--Ethics on Parade

    Started my IMA conference yesterday at 1 pm (some activities occurred before then). Opening speaker James Owen talked on "Cowboy Ethics," which he identified as: live courageously each day, take pride in your work, finish what you start, do what needs doing, keep your promises (he put special emphasis here), ride your brand, talk less and say more (not a widely held skill among academics), make sure that some things are NOT for sale and know where to draw the line. I was quite impressed with the simplicity and practicality of his speech.

    The second speaker was Norbert (Nobby) Lewandowski, former baseball player and CPA who now operates a motivational company on the topic of "Leadership, Ethics and Success." Nobby started the program by singing "New York, New York" (he is a respectable singer), then explained that he sang to help cope with a stuttering problem. His speech was filled with slogans, examples include "ATTITUDE: All the time integrity, tenacity, understanding, determination and enthusiasm," "Seven Cs of leadership: confidence, consistency, character, competence, communication, charisma and compass" and "leadership words: you did a great job, what do you think, I was wrong, thank you and we." Mr. Lewandowski was very well received by the audience and unquestionably is an impressive man and an amazing speaker given his stuttering issues--yet I was a little disappointed that ethics (at least for me) clearly was a third priority; I felt that IMA should have shown this more as a motivational speech for leadership and success.

    This mornings speaker was David Walker, one-time Comptroller of the U.S., speaking on "Keeping America Great." Mr. Walker had an impressive grasp of facts and indicated that the US would have endure short term (higher taxes, reduced spending, etc.) to avoid greater crises in the future. His diagnosis of problems in the American political and financial system was impeccable. His solutions indicated a greater confidence in the U.S. government to fix problems than I have; nevertheless, it was reasonable and would make a good starting point for a platform for a centerist third party (think John Mc Cain, ben Nelson, Blanche Lincoln, etc.) which I believe is almost inevitable at some point in the not distant future.

    One final comment: I would like to thank Smartpros (whose news service I sometimes use for post on Tick Marks for being an exhibitor at the IMA Conference.

    Friday, June 05, 2009

    Head for the Mountains! (Passing on Busch Beer, though)

    Will be at the IMA (Institute of Management Accountants) annual meeting next week; I have been Austin Peay's faculty representative for a student chapter the past four years. Not expecting to live blog, but do hope to make several posts while in Denver.

    Thursday, June 04, 2009

    IRS Ready to INCREASE (?!) Regulation on Tax Preparers (Be Scared, be very scared)

    IRS Commissioner Doug Shulman has vowed to have a new set of regulations by the end of 2009 to assure "uniform and high ethical standards of conduct for tax preparers" as a tactic to increase tax compliance and decrease the "tax gap." Shulman stated that tax preparers should be ethical, qualified and provide good service. Shulman plans to meet with stakeholders such as enrolled agents, CPAs, software vendors and citizen groups while developing the regulations and hold meetings in Washington, DC and elsewhere this fall once the regulations are closer to complete.

    A full response to this announcement would look like the "fisking" technique sometimes used in political blogs, kill off billions of electrons and might come out to the right of Tax Guru Kerry Kerstetter. A more restrained response is as follows: [1] Shulman's proposal, seen from the perspective of an academic with little or no actual tax preparation activity, looks like an insult to the large majority of honest, hard-working tax preparers. It is true that there has been a number of tax preparers in the news for bad conduct; at the same time, isn't racism effectively projecting the characteristics of a "few bad apples" onto an entire race. This feels like what is happening here, [2] the number of tax regulations and tax penalties have grown sizably since I last did significant quantities of tax returns in the 1920s, [3] Even Hubert Humphrey, a liberal icon of another day, realized that morality cannot be externally imposed. Ultimately, self-policing and shunning of bad behavior, perhaps combined with education on ethics, is likely to have the greatest effect on behavior--which leads to [4] the tax community is already self-policing and self-educating. The AICPA sanctions dozens of poorly behaving CPAs each year, blogs such as Taxable Talk and Roth CPA Updates show little mercy to wayward tax preparers and close to 40 states require continuing education in ethics (though admittedly not necessarily tax ethics). Perhaps Shulman will come to a reasonable and viable plan and I will have to eat some of these words, but I cannot have much initial enthusiasm for this proposal.

    Tuesday, June 02, 2009

    How Stands the Greenbook with Congress? (A More Serious Look than Last Week)

    Dean Zerbe of the Alliant Group weighs in with his projection of how President Obama's tax proposals will be viewed by Congress. Zerbe believes that indexing for inflation will continue and that the top two rates will not be increased in the short run (a side note: the present proposal may give the Republicans some ammo on the "marriage penalty" front). While the 0 and 15 percent rates for dividends and for capital gains will be continued, Zerbe expects the top capital gain rate to be increased, probably to 20%. Zerbe points out the advantages of the Interest Charge Domestic International Sales Corporation (IC-DISC) for small American businesses in international trade, saying that Obama has no plans to end this benefit in spite of European opposition and that tax professionals need to provide info on IC-DISCs and their advantages to appropriate clients. Zerbe believes that the 28% cap on itemized deductions will not succeed (more because of mortgage interest than charitable donation grounds and though there may be a $200,000 cap [$250K MFJ] for full itemized deductibility) and instead limits on employer-provided health insurance, especially for high-income taxpayers, will be used to fund new health-care initiatives. Finally, Zerbe fears that the Bush $3.5 million unified tax credit and 45% maximum rate for the estate tax will be incorporated for approximately the 2010-2012 period, with no clear guidance thereafter (shades of the year-to-year AMT patch).

    Zerbe's commentary makes for interesting reading, though who knows whether his predictions will be more accurate than my predictions last fall. For the most part, Zerbe is not one who feels that Obama is totally out to gut the rich, though high-income taxpayers may pay a larger share than they have the last 6-7 years.

    Monday, June 01, 2009

    Start of Year 5

    June 1, 2005 was the start of the professional part of "Tick Marks" (I did a few practice personal posts in May) and I look forward to accounting, tax, personal finance posting (as well as administrative and off-topic posts) during the year ahead. It feels like I have had less time for "Tick Marks" in the last year but I hope to stop, perhaps even reverse, that trend this year. As always, thanks for reading and linking.

    My blog is worth $7,903.56.
    How much is your blog worth?