Monday, February 25, 2013

Another Tax Season, Another Warning: Watch Out for "IRS e-mail" Scams

The IRS sent another warning to taxpayers to watch out for fraudulent e-mails and social media posts attempting to get credit card numbers or other personal information.  The IRS points out that it does not initiate taxpayer contacts by e-mail or social media; using the U.S. Postal Service to notify taxpayers.  Specific warnings: do not reply to suspicious messages, open attachments or click on e-mail links.  A specific example of the sort of tricks which the IRS warned about: use of fraudulent but tricky websites such as or  Remember that the IRS website ends in .gov.

Taxes are a stressful event for millions of Americans every year and the appearance of what appears to be offical IRS correspondence is particularly scary.  Nevertheless, if you are not SURE that the correspondence comes from the IRS; either contact your professional tax preparer or the IRS (toll free at 1-800-829-1040) before acting.

PCAOB Audits Audit Reports

A recently published PCAOB report on smaller members (firms with less than 100 publicly traded
audit clients) found that the significant error was down in 2011 from the middle of the previous decade; but only marginally down from more recent years.  Specifically, 44% of audit firms had at least one significant audit deficiency (hereafter SAD) during the 2007-2010 period (hereafter 07-10 period) vs. 61% with a SAD during 2004-2006 (or the 04-06 period).  Additionally, 28% of audits had SADs in 07-10 period vs. 36% in the 04-06 period and on second round audits 36% had SADs in the 07-10 period vs. 55% in the 04-06 period.  While the reduced rate was encouraging, the presence of SADs in over a quarter of audits was unsettling according to PCAOB member Jeanette Franzel.  Additionally, 20 firms with SADs had not submitted a remediation plan to the PCAOB.

With the wide disparity of firm sizes (one wonders how the smallest firms cited could even qualify to audit an SEC client) it is somewhat difficult to know whether to be encouraged or discouraged by these results.  One exception--the number of firms avoiding the remediation plan is clearly too high.

Wednesday, February 06, 2013

The Second Hundred Years of The Federal Individual Income Tax

Numerous commentators have noted the 100th anniversary of the Sixteenth Amendment to the US Constitution and the imposition in 1913 of the individual income tax (Abraham Lincoln actually briefly used an income tax during the Civil War, but it was declared unconstitutional shortly after).  As the second century of the Individual Income Tax starts (the Corporate Income Tax actually started four years earlier in 1909) consider the following:

--there are over 1000 sections to the Internal Revenue Code.  This does not include regulations, court decisions or tax treaties

--an SELECTIVE volume of IRC and Regulations runs close to 2000 pages in length; no small amount of which is small print.  Again, this excludes court decisions and tax treaties.

--Even with the discontinuation of the RTP program, there are three separate licensure programs for tax preparation: enrolled agent exam, CPA exam and bar exam.

-- During the upcoming year, we have the "fiscal cliff" tax changes and "Obamacare" tax regulations to implement--and President Obama has called for more changes as part of avoiding "sequestration."

--Individual income taxes rake in about double what was produced in the 1980s--and the country STILL has run a deficit of over $1 trillion for the past four years (although the CBO has projected slightly less than a $1,000,000,000,000,000 deficit for FY 2013).

Given the monumental appetite for US Government spending by the President and large numbers of Senators and Congressmen/Congresswomen; it is virtually impossible to develop a taxation system that would meet these needs fairly and effectively and my experiences with individual IRS agents have almost always been positive; in my opinion, the IRS is less of the problem than the people we elect.  Nevertheless, for the second decade:

--Please simplify tax law.  I realize that I have made blog posts have been inconsistent with this; but tax simplification ties up fewer person-hours, adds to the perception of horizontal equity and probably would improve tax compliance.

--Build up the not-for-profit sector, both secular and faith-based.  One of the GOOD things that both President Bushes did was to encourage private charity.  While, the not-for-profit sector cannot immediately replace governmental social and entitlement programs, they can be more flexible and often offer more actual compassion than a faceless check from the government.

--Re-evaluate what government can actually effective do.  I do not doubt the good intentions of many of those who want the government more involved in the economy; instead I wonder why in the face of past results they expect actual solutions to occur.  The US Government has spent trillions of dollars on anti-poverty programs over the last 50 years--is there any significant evidence that poverty has lessened?

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