Drilling Down on the Registered Tax Preparer Regs

The Internal Revenue Service is expecting about 1.2 million tax preparers to request a taxpayer identification number, which is set to be required for paid preparation of any tax return with a due date of December 31, 2010 or later. To get the number, the applicant must be a enrolled agent, CPA, attorney or registered tax preparer. While the present annual charge to receive the number is about $65, the IRS plans to soon have regulations regarding added fees for: regulating enrolled agents and registered tax preparers, an examination for registered tax preparers and providing and monitoring continuing education. The new regs also provide some relief for tax preparers who are double charged and a mechanism to determining fitness of the tax preparer to practice before issuing the identification number.

Non-EA/CPAs will be dismayed by the likelihood of a new round of monetary charges and libertarians won't be thrilled by the bureaucracy and "red tape" associated with the identification program. One hopes that there IS an improvement in tax preparation quality resulting from this program; elsewise, it is hard to see how the benefits from the program justifies the cost.

Sign Up Next Month for Your Chance to Pay About $65 to Prepare Tax Returns

Russ Fox Finds a Problem for EA Candidates in Today's Announcement

[Post #1100] The Internal Revenue Service announced today that tax preparers could sign up in mid-September to receive a preparer tax identification number (PTIN). The PTIN would be required by any paid tax preparer starting next January. The $64.25 fee would include $50 for technology and compliance charges by the IRS and $14.25 in administrative charges by an unknown third-party vendor. The IRS plans to require annual renewal of the PTIN and may change the yearly fee after determining actual costs of the identification program.

I was and remain an uneasy supporter of the preparer program--certainly it penalizes those who take ill during tax season and those preparing only a few returns; some also argue that it presently discriminates in favor of EAs, CPAs and attorneys. It is hard to argue reasonableness of a less than $100 annual fee, though some bottom-end preparers may be forced out (more than a few would consider this a good thing). Time will tell whether the ID program improves tax compliance or simply is another revenue raiser to feed Washington's insatiable desire for cash.

Do You Have the Temperment of an Accountant?

Roth Tax Updates

Best Colleges Online.net gives ten characteristics that tend to be present in professional accountants. Among the characteristics: very good number skills, eagerness to solve problems and conservative dress. Also very important: integrity, people skills (more than it may appear) and good time management (oh, well).

An excellent guide to potential accounting majors (and to some degree, finance majors as well). Thanks to Joe Kristan of Roth CPA Updates, who ran a similar post last Friday (while I was celebrating my 54th birthday).

Democratic Senators Call For Better Off-Balance Sheet Disclosure

A half-dozen Democratic senators, including both California solons, have called on SEC chief Mary Schapiro to improve disclosure of off-balance sheet (OBS) debt and repurchase agreements. The authors stated that the present quarterly "snapshots" and vaguely-enforced standards on disclosure have led to numerous abuses by large financial institutions such as Lehman Brothers, Citigroup and Bank of America. They called for greater disclosure of off-balance financing in the annual 10-Ks and also period-end and daily average financial leverage ratios in the notes to the financials.

There is good reason to believe that over-regulation of American business, combined with uncertainty related to major recent legislation, is impeding the robustness of the present recovery--and could even lead to a small "rebound" recession. Having said that, the fans of regulation get an undeserved boost when businesses and their auditors approach disclosure from the perspective of "what is the minimum acceptable" rather than "what would be most consistent with the principle of full disclosure." I am not sure why these proposals were not included in the recently-passed financial regulation law, but must acknowledge that Ms. Boxer, in particular, has made a savvy political move here in her tough re-election campaign.

One Explanation for the Slow Employment Recovery

Business owner Michael Fleischer of New Jersey provides an inside look at how taxes, especially in high-tax states, are choking job growth even in the presence of a persistent (though weak) recovery. Providing considerable detail and more internal data than many businesses would be willing to show, Mr. Fleischer demonstrates that the paycheck received by an employee is only about 60% of the cost to the employer for employing that worker (gross pay being about 80%). For this, the employee gets a $59,000 annual salary (apparently about the national median income), life, health and dental insurance. Mr. Fleischer also points out that a tax increase on health insurors led to higher insurance premiums for the employee and employer while reducing some benefits and that serving as a tax collector adds to uncertainty in an already soft recovery.

A very instructive article by Mr. Fleischer, who does not even cover the cost of complying with other human resource-related federal and state regulation. Big government doubtless carries some benefits--whether the benefits are worth the cost; however, is quite a different question.

Are YOUR Clients Ready for an IRS Audit? Are You Sure? Really?

In the face of increasing audit rates for medium and large businesses, a KPMG survey of nearly 300 executives found that 40% stated that their company did not have formal plan for IRS audits--this being the case even though 40% of those surveyed believed that audit activity had increased for their firm. A combination of pressure caused by budget deficits to generate tax revenue and the IRS Issue Tiering system implemented four years ago were two of the reasons given for the IRS activity increase. KPMG executive Sharon Katz-Pearlman stated that tax directors, CFOs and corporate boards should be putting greater thought into the impact of audits, especially with new reporting requirements for uncertain tax positions just around the corner.

While the first line of tax preparedness needs to come from the chief tax officer, controller and client legal counsel; the tax divisions of medium and large CPA firms have an opportunity here--develop a tax audit preparedness strategy; then market this to their clients and perhaps even businesses which aren't their clients. Until the Internal Revenue Code is simplified and state and federal deficits brought under control (if such ever happens, by no means guaranteed), there will be every incentive for tax authorities to pursue tax deficiencies, whether real or perceived, with great intensity.

PCOAB: Trouble Ahead for Sloppy Audit Supervision

The Public Company Accounting Oversight Board, citing a Sarbanes-Oxley provision, has put CPA firms on notice that top auditor review shortcomings which allow staff and senior auditors who fail to comply with accounting standards or state or federal laws. Acting PCAOB Chairman Daniel Goelzer criticized accounting firms for sometimes failing to provide sufficient supervisory oversight of field work and that added PCAOB sanctions appear to be a reasonable response. Nevertheless, a comment period is available until October 4 for those believing that such sanctions are unmerited.

The PCAOB response is understandible and may develop teeth if CPA firms cannot satisfy critics that supervision is presently sufficient. Clearly, the next move comes from the accounting profession: there is a clear need to demonstrate that sloppy field work or overly aggressive positions cannot survive the audit review process.

August Carnival of Taxes Now at Don't Mess with Taxes

My post about "IRS Liens" from last week was included in Carnival of Taxes 73 "Dog Days of Taxes" this past Monday. Thanks to Kay Bell for selecting this post!