Tick Marks

Agility is for CPA Firms, Not Just Sports Teams or Dog Shows

2012-01-30T10:13:00.000-06:00

Rebecca Ryan, proprietrix of Next Generation Consulting and motivational speaker, describes "the agile CPA firm" as the CPA firm most likely to thrive in the future. She points out that agile CPA firms go beyond social media such as Facebook, Twitter and LinkedIn to empower junior employees, to look beyond traditional answers for struggling clients (one example: an Ohio firm which found non-traditional financing for cash-strapped manufacturing clients), to reduce office rent by finding inexpensive properties to rent and replace physical client contact with e-mail and other electronic communication and to save costs by avoiding traditional perks for top management. Additional features of agile CPA firms include an emphasis on innovation and continuous improvement, searching for market niches, transparency in business relationships, an emphasis on value added rather than time spent and some level of ruthlessness with underperforming or vexing clients and employees. The end result: MIT research indicate on average that agile firms increase revenue and profit by 30-40% more per year than non-agile firms.

The fact that Ms. Ryan points out issues probably also raised by Michelle Golden's Golden Practices or Rick Telberg's CPA Trendlines does NOT mean that they should be ignored. Certainly, the expansion of technology in accounting practice is an issue that can seem overwhelming by itself to practitioners my age (55) or older, but the empowerment of younger staff, transparency and value added emphasis and greater use of electronic communication to save rental fees (and possibly commute time) are also well worthy of consideration.

Tax Traps to Traverse

2012-01-30T09:44:00.000-06:00

New Tax Minefields

Yahoo's Market Watch reports on a number of changes in the tax law that could lead to heartburn, unexpected tax costs or worse for unwary preparers. Probably the biggest lurking headache comes for taxpayers with sizable overseas investments; a new Form 8938 must be filed--if not, the MINIMUM penalty is $10,000. Among past tax moves that could come back to bite this year are use in 2008 of the first-time homebuyer tax incentive (a loan rather than grant that year) and conversion of traditional IRA to Roth IRA in 2010 (remember that there was a TWO-year spread of tax on the conversion). Additional dangerous changes include confusing W-2s from employers regarding the FICA 2% credit (in part because its extension was short-lived and occurred very late in 2011), more detail from brokers on basis of financial assets sold for potential capital gains or losses, a new provision in gift and estate tax law to allow carryover basis instead of the traditional step-up basis (this could lead to higher than expected taxable gains on property received by beneficiaries of decedants) and reduction of the available credit for installing energy-efficient home improvements.

Seriously consider using a professional preparer such as a CPA, tax attorney, enrolled agent or an experienced registered tax preparer (ask the registered preparer for proof that they have passed the new competency exam if you have not had them previously prepare a return for you) if you have one or more of the tax events listed above, particularly the homebuyer provision from a 2008 home purchase or sizable foreign investments. Also, particularly if President Obama is re-elected, be ready for new tax complications related to 2010's Affordable Health Care Act in 2013.

Romney Releases Two Years of Tax Returns

2012-01-24T08:37:00.000-06:00

Romney Tax Return Analysis

Major Republican Presidential contender Mitt Romney, under considerable pressure, released two years of tax returns this morning. Important features include income of about $20 million per year, annual taxes of about $3 million or 15% and giving to his Mormon church of about 10%, consistent with Christian teaching about tithing (the issue of whether Mormonism is or is not part of Christianity will be left for other bloggers to address). Romney, whose wealth approaches one quarter BILLION dollars, explained his hesistancy in releasing the records as an accomodation to the manager (trustee) of family trust funds.

There is no obvious evidence that Mr. and Mrs. Romney and their tax preparers were anything other than upright on preparation of their tax return. Regarding their wealth and income, a lot of people are uncomfortable with Wall Street these days (and probably with at least some cause), but nothing to date has come to light that indicates that Romney has done anything illegal or even clearly unethical while working for Bain. None of this means that Romney automatically deserves support--there are still reasons such as disagreeing with his political positions, concern about depth of commitment to present positions on social issues, concern about his ability to connect with everyday voters or belief that Romney, like John McCain, will not hold up well in the street fighting of a general election campaign to support other Republican candidates and certainly plenty of political issue reasons for Democratic-leaning voters to support President Obama.

The Santorum Slash: Rick Does NOT Tell Taxes to Take a Hike

2012-01-19T21:24:00.001-06:00

Scoring Santorum's Tax Proposals

Rick Santorum, whose campaign has had highs and lows in January (but comparatively speaking, much better highs than bad lows) has made a variety of statements in regard to the federal income tax while speechmaking and debating. The Tax Policy Center, associated with the presumably left-leaning Urban Center and Brookings Institute, estimated that if all Santorum's proposal were to be enacted; tax revenue losses would be $1.3 trillion or 40% of present tax revenue. Among former Senator Santorum's tax proposals are continuation of the "Bush" tax cuts early in the prior decade; collapsing tax brackets to two (10% and 28%), eliminating the alternative minimum tax, cutting capital gains and dividend taxes to 12%; the elimination of the estate tax and elimination of new taxes associated with "Obamacare."

A 40% drop in tax revenues would be a major shock to the U. S. Treasury; but two things to consider: [1] there is almost no chance that Santorum would everything he proposes through Congress; especially controversial provisions like the capital gains/dividend rate cut; [2] there probably would be some offsetting revenue from greater economic activity (though who knows if such an offset would reach Lafferian levels). Republican base voters should be excited about Santorum's tax proposals; moderates probably not so much.

Like Currency, Like Professional Designation: "CPA" Going Canadian?

2012-01-18T21:29:00.001-06:00

Canadian Accountant Bodies Plan to Merge

CPA Canada website

Three major professional organizations in Canada: the Canadian Institute of Chartered Accountants, the Certified Management Accountants of Canada and the Certified General Accountants of Canada are in talks to merge the organizations into a single body for Canadian accountants. The designation of choice for the proposed new organization is Chartered Public Accountant (does the acronym look familiar?). The four goals of the new professional organization are to insure public confidence through a single certification program and high ethical standards; to insure that the new CPA designation is respected both within Canada and internationally; to make that Canadian accountants continue on a prosperous path and to govern accounting matters effectively. Accountants in Quebec have already agreed to merge; giving "la belle province" accountants a chance to demonstrate to the rest of Canada the potential benefits of combining.

It is worth watching Canada to see whether this new merger is beneficial to Canadian accountants. Certainly, the AICPA and IMA could stand to be on better terms (national bodies, not necessarily problematic at local chapter levels).

Key Topics of 2011

2012-01-09T10:04:00.001-06:00

Rick Telberg's CPA Trendlines reviews its 20 stories with greatest reader interest and summarizes by saying that competitiveness has become the emphasis of the day. The top five topics plus a sampling of the rest: Its Offical: The War for Clients Has Begun, Top Tech Strategies of High-Performing Firms, Widening Gap Among Solo Practitioners, Five New Realities for Accountants and Lawyers, Super-Sized: Meet the new "CliftonLarsonAllen," Marketing Efforts Surge as Accountants Battle for New Clients, Cloud Computing for CPAs? Client Portals? Be Afraid, Be Very Afraid, Bookkeeping Rates Show Broad Advances, The New Practice Management Discipline, New IRS Requirements Could Force Shakedown in Tax Prep Industry.

While some, perhaps many of these topics may have limited utility to some readers, especially tax preparers, Telberg's blog, between its stories and one of the best updated blogrolls around, is a must read for many accountants, especially those who deal with practice management issues.

Tax Update to Start 2012

2012-01-09T09:48:00.001-06:00

2011 Tax Update

Carnival of Taxes 94

Welcome after three weeks away. For a summary of some important posts by other bloggers in the interim, link to the Carnival of Taxes above.

Bonnie Lee of Fox Business provides alerts about a number of 2011 filing season changes and issues to look for in 2012. Base filing date this year is April 17 instead of the (more or less) usual April 15. For those with quarterly payments to make, January 17 (moved back for Sunday and Martin Luther King Jr. holiday) is the due date for the fourth quarter. A new Form 8949 spells out basis in shares sold (for Schedule D purposes). The business rate for mileage went from 51 to 55.5 cents at July 1, 2011; other rates are $0.23 per mile for medical and moving and 14 cents for charity. The maximum earnings subject to FICA is now $110,100, up $3300 from last year. While the payroll tax cut handled so clumsily by Republicans last fall continues for at least two months; the Making Work Pay credit is gone and the first-time homebuyers credit is now restricted primarily to military families. Finally, self-employed taxpayers will find that the health insurance adjustment returns as a "toward AGI" deduction instead of enjoying last year's status as an offset against self-employment tax.

Ms. Lee has provided a useful and concise summary of significant tax law changes. For an election, 2012 may have more adjustments in tax law than typical for a presidential election year, since many thorny decisions were effectively punted last year.

Wrapping up 2011

2011-12-17T09:12:00.002-06:00

With the possible exception of a religiously-oriented post about Christmas Day, this will be my final post of 2011. As I have often done in the past, I thank most of my commenters (spammers excluded), every one who read my posts and a special thanks to those who cited posts in their blogs or carnivals or who link to this blog in their blogroll.

Hints for the Competency Exam by the IRS

2011-12-17T09:08:00.001-06:00

IRS Candidate Information Bulletin

Accounting Today Headline

The IRS recently published a 12 page "Candidate Information Bulletin" (link above) to assist tax preparers planning to take the Taxpayer Competency Exam to become a Registered Tax Preparer. Included in the bulletin are study resources, pre-test study materials, an overview of the test and information on the testing fee and test center locations and procedures. A notable item from the Bulletin is that the exam is blacked out (cannot be taken) during the April 1-April 15 period. I also recommend studying the Master Tax Guide (available from CCH and RIA) either to complement or as a substitute for their recommended study materials which are a series of IRS publications.

This is a continuation of the tax preparer registration process. Whether or not you agree with the concept of taxpayer registration (and I do not as chronicled in earlier posts), the IRS is to be commended for putting together this helpful guide.

Avoiding an Internet Cloak of Invisibilty

2011-12-09T10:43:00.001-06:00

While a "cloak of invisibility" may have appeal for a comic book superhero or a desperate boy in any number of teen sex romps, being invisible on the Internet is NOT a good place to be for a CPA firm. Nevertheless, Online Marketing Group found that nearly 40% of small CPA firms use no keywords suitable for Internet searches and over 80% received a poor or fair rating for their keyword strategy (or lack thereof). Larger CPA firms barely do better; over 40% have no keyword and five out of eight do fair at best in keyword use. Larger firms are better at social media (Facebook, Twitter, etc.) profiling with almost three of four referencing a social media site on their webpage versus one out of SIX for small firms. Mike Murray of Online Marketing Coach asserts that many CPA firms are not paying enough attention to social media and search engines and that both can be powerful generators of potential new business.

The marketers have a legitimate point here: CPAs cannot waste opportunities to generate potential business. Two counterpoints: [1] in the busy world of the CPA, any number of client issues probably seem more urgent that updating the website to setup a Facebook or Twitter page or digging through their website to generate keywords; [2] social media business generation, while clearly having significant potential, is somewhat of a "scattershot" proposition at the moment and CPAs may prefer a more focused approach to client development. One suggestion--during the lighter months of activity (certainly NOT the next four months for most CPA firms), have a local consultant (perhaps even a grad student in marketing for smaller CPA firms) look through your website and suggest ways to make your website more visible to those with real client potential.

Easy to Miss Tax Deductions

2011-12-09T10:04:00.001-06:00

Note: Thanks to Kay Bell for running the TPIN Competency Article in "Merry Taxmas" in the December Carnival of Taxes at Don't Mess with Taxes this past Monday.

Kiplinger recently gave a list of ten commonly missed tax deductions, which should actually be eight because one (child care) is a credit (similar to but not a deduction) and one is an increase in basis (only deductible when an item is sold). The eight mentioned include state sales taxes (keep a special eye out here if you made a large consumer purchase like a car or boat. However, also remember that you get EITHER sales or income tax and that the annual renewal may not have passed by Congress yet); out-of-pocket charitable (remember charitable mileage and make sure you have receipts (cancelled checks no longer work in an audit) if claiming over $250 for a given charity); interest on student loans paid by parents; job-hunting costs (primarily by first-time job hunters--the 2% of AGI limit will make it hard for present job holders to qualify); cost of moving to a new job (remember the 50 mile rule and the 39 weeks in first year rule--this ususally means a move from one city to another. It IS possible if you lost a job through no fault of your own and moved twice in the same year to take two rounds of this deduction--I did so in 1978); reservist costs of training (similar to business travel if you travel over 100 miles and are away from home at least overnight); deductions of Medicare premiums paid (primarily available to the self-employed; avoids the dreaded 7.5% rule) and estate tax paid related to income earned by decedant (a small giveback from the government for adding insult to injury by double taxing (income and estate) money earned by someone that you probably were grieving).

Kiplinger also provides a slide show of other potential tax deductions. Throughout this month, bloggers listed in the blogroll at right will be mentioning other tax deductions to remember; it may be well worth your time to check these blogs throughout the month to make sure that you do not miss any important deductions.

PCOAB Increases Membership in Standing Advisory Group

2011-11-30T08:19:00.001-06:00

The Standing Advisory Group for the Public Companies Accounting Oversight Board has been increased in size to 42 members and terms extended to three years. Prominent men and women from accounting firms, medium and large businesses, major universities and even a labor union are among the 42 who give counsel to the five-member board.As the saying goes: "With great power goes great responsibility." The PCOAB has done well to seek the advice of these prominent men and women in making their decisions about accounting policy.

TPIN Competency Tests Are Just Around the Corner

2011-11-28T08:22:00.002-06:00

IRS Fact Sheet 2011-12

The Internal Revenue Service has announced the second phase of tax preparer regulation; this phase being testing. Next week, scheduling of Tax Preparer Competency Examinations will be announced and the fee for the exam will be $116 per sitting; previously, it had been announced that Prometric (which also oversees electronic CPA exam administration) would administer the exams. Fact Sheet 2011-12 (see link above) overviews the testing procedure. The IRS estimates that about 350,000 tax preparers will need to take the 2.5 hour, 120 multiple choice question exam emphasizing Form 1040 (all registered tax preparers except EAs, CPAs and attorneys) and that they must complete the exam successfully by December 31, 2013. Yet to be determined (to the best of my knowledge) are the following issues: CPE requirements, background check requirements (fingerprinting is out for now) and frequency of exam (pass once for all time or take every "x" (e.g. five) years). In a related development, the IRS announced no change in the requirements for Enrolled Agents.

The requirements above suggest that the Registered Tax Preparer designation will be effectively Enrolled Agent Light; nevertheless, for many taxpayers, this will be plenty of tax heft at generally a significant discount from an attorney, a CPA; probably even an EA. The question as whether federal registration of tax preparers is needful; however, continues to be valid.

"Patriotic Millionaires:" A Buffett Line of Wealthy Tax-Raisers

2011-11-19T08:49:00.002-06:00

Patriotic Millionaires Web site

A group called the Patriotic Millionaires visited Washington recently to lobby for an increase in the tax rates for high-income Americans. The group announced opposition to Senator Pat Toomey's (R-PA) proposal to reduce the maximum tax rate from 35 to 28 in exchange for limiting or eliminating many present tax deductions.
The group consists of about 100 people or couples, few if any famous and mostly from California or the New York City metro area (though a surprising number come from Utah). They claim either to be making or have made $1 million or more per year.

That Warren Buffett, Peter Lewis of Progressive Insurance or the Patriotic Millionaires could be lobbying for higher tax rates should not surprise; Karl Marx's benefactor and co-author, Josef Engels, was very wealthy. Power comes in many forms: monetary wealth and political influence being two examples and some may be willing to give up wealth for political influence. I will leave the debate as to whether tax rates on the wealthy are too high, too low or just right to others, at least for now; what clearly (at least to me) is the case is that the federal government is too big to succeed and the tax code is too complex to collect taxes as efficiently as possible.

Financial Planning Expert Larry Carroll Comes to Austin Peay

2011-11-18T13:09:00.002-06:00

Larry Carroll, cited by Barron's as a Top 100 Independent Financial Adviser on multiple occasions, returned to his alma mater to address a standing-room only crowd of students and faculty at Austin Peay's Gentry Auditorium in the Kimbrough Building this morning. Mr. Carroll specializes in retirement planning and emphasizes control of risk. Mr. Carroll pointed out that he was a first-generation college student and survived a rocky start at his first school before thriving at Austin Peay. Three life lessons that he shared in the early part of his talk: [1] position and reputation are less important than whether you can do the job; [2] Austin Peay (and similar universities would provide comparable preparation, I's sure) gave him all the background he needed to succeed at a prestigious graduate program (UT-Knoxville) and [3] job security is based more on your skills (and work ethic?) than the size of the business that you work for.

CCH, Technology and Its View of the Future

2011-11-11T10:05:00.002-06:00

CEO Mark Sabbatis of major reference publisher Commerce Clearing House delivered a talk to CCH personnel recently on being a "future-ready" firm. While much of the presentation was geared at CCH-specific issues and opportunities, Sabbatis did have some useful ideas for businesses in general. Among these insights: the importance of following best practices, resilency and flexibility in business operation, a holistic approach toward employees, continuous improvement in processes as well as results and a disciplined approach toward integrating new technology. The conference also found that a majority of attendees needed to improve their tax document processes and they also sought to improve their ability to leverage technology.

Although CPA firms are far more tech-savvy compared to when I worked as a CPA 30 years ago or so, competitive pressures require that the successful practice NOT rest on their technological laurels. The emphasis on improving processes as well as results was also impressively insightful.

Congress Makes End of Year Tax Decisions: Smart Money Predicts the Results

2011-11-11T09:44:00.003-06:00

It's the standard (regrettably) end-of-year panic by Congress to reconsider tax breaks which are set to expire. Keep in mind in considering the likely outcome of these breaks that the Supercommittee on the deficit looms and the Democrats want "revenue enhancements" to be included in the final package.

The editors of Smart Money ranked the likelihood of extension for several popular tax breaks. They gave highest likelihood to (yet ANOTHER annual) alternate minimum tax patch; a strong likelihood to the tuition and K-12 teacher supplies deductions and the state/local income or sales tax deduction option; a more likely than not rating to extending the reduced Social Security withholding rate and IRA charitable deduction provisions and a low likelihood of maintaining the energy-efficient home improvement credit.

For the most part, I tend to agree with Smart Money--although based on the deficit issue mentioned above I am less confident than the authors that the income/sales decision option, the charitable IRA deduction and the reduced Social Security rate of 4.2% for employees will be continued (one possible compromise on the Social Security--the 4.2% rate would only be used for the first $50,000 of wages or salary per job). One takeaway--if you have home repairs such as weatherstripping or better insulated windows to install; arrange to have this done before Christmas. The more salient concern here--why can't Congress (both Harry Reid and John Boehner) get this done earlier in the year so taxpayers have some time to make decisions.

A Couple of Early Thanks

2011-11-11T09:39:00.002-06:00

First of all, thanks to my friends in Clarksville and elsewhere who serve in the military as well as all military men and women who serve throughout the world. Stay safe and celebrate YOUR day.

Additionally, thanks to Kay Bell and Don't Mess with Taxes for including the "Millionaires Tax" post in this week's Carnival of Taxes. Thanks also to Robert Flach for mentioning the post in his Buzz in The Wandering Tax Pro.

"Millionaires Tax" Now Gone--Next Issue:Hiring Exiting GIs for Civilan Jobs

2011-11-04T22:25:00.003-05:00

Senate Democrats have decided to drop a proposed "millionaires tax" to pay in part for President Obama's recent jobs and have moved on to pursuing funds to pay for a tax credit for businesses hiring soldiers re-entering the civilan job market. Democratic Senators Debbie Stabenow (MI) and Patty Murray (WA) both urged the Senate to remember the sacrifices of military men and women and ease their return to civilan jobs. The proposal would continue a withholding provision for federal and state contractors to enable the creation of a $2400 credit for businesses hiring unemployed veterans. The credit could go up to as much as $5600 if the veteran was out of work for more than six months and as high as $9600 for disabled vets.

A shrewd political move by the Democrats to be seen as military friendly and this credit surely is less controversial than a surtax. Would the jobs credit improve hiring of ex-GIs?; it is hard to say but with overall unemployment rates of nearly 9% I can understand why Democrats would want to see.

Can Perry's 20% Replace Cain's 9-9-9?

2011-10-27T13:46:00.002-05:00

Rick Perry has announced a "cut, balance and grow" tax plan with a 20% flat rate as one of its components (others include a Balanced Budget Amendment and a ban on earmarks). The plan would be optional, taxpayers could choose the present tax law or the 20% tax. Only mortgage interest, charitable contributions and state and local taxes would be deductible under the 20% plan and Perry would raise exemptions to $12,500 each to exclude most low-income and working class Americans from tax liability. Perry would also go to a 20% rate on corporations while significantly cutting into corporate tax incentives.

Predictably attacked by liberals as being "pro-rich," Perry's plan is intriguing in its simplicity EXCEPT for the optional feature. Giving taxpayers a choice between the proposed plan and present tax law is clearly full employment for tax CPAs, but the thought of having to calculate tax both ways for clients bringing in tax documents on April 8 (or October 8 for extensions) probably is enough to cause even the most mild-mannered CPA or EA to have nightmares and run screaming from his or her desk.

"Save for Retirement Week." Why Not?

2011-10-20T13:44:00.002-05:00

{Note: Apologies for my lack of recent posts)

The sixth annual "Save for Retirement Week," original designated by Congress through a bi-partisan (not sure what that means? join the club) resolution. ING Financial and Great-West Retirement Services promoted the week recently and the week was mentioned at AICPA's fall council meeting. The week fits well with the AICPA's "Feed the Pig" initiative as well.

Admittedly, in these parts, the third week in October is best known as the week of the Alabama--Tennessee football game (likely a no contest this year). Nevertheless, "Save for Retirement Week" is a worthy event and hopefully numerous people will be encouraged to talk advantage of retirement plans at their employers'.

European Union "Green" Paper Proposal: Independence Uber Alles (Over All)

2011-09-28T07:33:00.002-05:00

Accounting Age Report

A proposal by the European Union on audit firm operation goes to great lengths to emphasize firm independence and seems certain to create great controversy. Among concepts under consideration are bans on audit firms providing non-audit services such as tax planning and consulting to EVEN non-audit clients, required rotation of audit firms on large clients and limitation on proportion of fees obtained from a given client. The Institute of Chartered Accountants of England and Wales provided mild endorsement, stating that greater transparency on audit firm selection and implementation of International Standards on Auditing appeared to be positive features of the proposal while warning that the final document must consider unintended consequences.

While it is hard to imagine even the PCAOB or SEC going this far in audit firm regulation, doubtless the U. S. audit community, especially the "Big Four" and second tier firms such as Grant Thornton and BDO Seidman, will watch Europe's consideration of this proposal with great interest. Some in the US have called for mandatory audit firm rotation in the past and some further restriction on nonaudit services for audit providers of publicly-traded firms is at least conceivable here. Furthermore, there are some U. S. CPA firms which provide audit services for European companies and they could be impacted by Europe's decision.

Seven Accounting Changes Which COULD Affect Your Bottom Line

2011-09-15T14:02:00.003-05:00

Jim Brendel of Smartpros has picked out the seven accounting changes occurring during 2010 which he believes have the greatest chances of affecting a company's financial statements. The first is "multiple deliverables"--an example would be a auto dealer who sells both a car and an extended warranty. The new standard requires only estimates of the value of each rather than objective measuremnt. The second major issue is software enabled devices such as "smartphones." Revenue can now be taken at time of sale rather than allocating over the shorter of the life or service contract period.

Five other topics with potential to affect business results include: more detailed fair value accounting disclosure (three levels of valuing inventory and sales); going to a qualitative standard for analyzing beneficiaries of variable interest entities, expanded XBRL reporting requirements for publicly-traded companies, greater latitude in non-GAAP note disclosures and (by contrast) greater scrunity on loss contingency disclosures. Topics to watch out for in 2011 include short-term borrowing disclosures, Dodd-Frank disclosures (especially top management compensation) and (of course) IFRS convergence.

Brendel seems to have some good insights here; while smaller businesses may not be affected by more than one or two, I could certainly see even a medium-sized business being affected by four or more of the seven items listed.

IRS Heads-Up on the Taxpayer Identification Test

2011-09-15T13:31:00.002-05:00

A recent IRS announcement clarified that 78 topics in seven major areas: collecting taxpayer data, treatment of income and assets, deductions and credits, other taxes, completing the filing process, practices and procedures and finally ethics; would be tested on the new competency exams to establish Registered Paid Tax Preparers. In addition to passing the test, prospective Registered Tax Preparers (RTP) would have to pass a background check and obtain 15 hours of continuing education per year (vs. 16 hours under Treasury Circular 230). RTPs have until December 2013 to take the this exam if they have Provisional Preparer Identification Numbers (PPIN), but may take the exam as soon as it is made available. It appears that the Competency Exam will be available this fall and will run about 2-3 hours in length. EAs, CPAs and attorneys are exempted from the competency exam, at least for now. The Competency Exam, like the CPA exam and numerous other professional exams, will be given via Prometric. A fee of between $100 and $150 will likely be charged to take the exam; this is in addition to the annual $64.50 to be paid to the IRS. Candidates will have IRS Publication 17, Form 1040 and Form 1040 instructions available to them during the exam.

It is good to see some preliminary information about the Competency Exam. The facts that individual tax is the only area of taxation covered, that the exam is RELATIVELY short (less than half a day vs. two days for the CPA exam) and that materials will be able to students taking the exam suggests to me (perhaps overly cynically) that the test is designed more to raise revenue than to regulate entry to tax preparation. That said, I am sure that some tax preparers WILL be weeded out by the test, especially between now and December 2013.

Corporate Fraud in China? Fitch Says Look for More Allegations.

2011-09-08T13:17:00.002-05:00

Credit-rater Fitch Ratings says that it expects additional complaints of accounting fraud to be leveled at Chinese-based businesses; though it also mentioned that some such allegations will be found to be without substance. Additonally, Moody's has listed "red flags" on some Chinese companies. A number of Chinese companies which are listed on US-based stock exchnages were recently hit with fraud allegations. Several Chinese firms have already been suspended or withdrawn from US stock exchanges and Moody's. Fitch seems to believe that many of the allegations will prove partially true and partially false and recommends that Chinese standard-setters and financial executives take a cue from Latin America in regard to improved corporate governance.

Financial fraud is one of the most devastating blows to an effective stock market that exists. Given the woeful returns on many US-based investments; investing in global markets has become increasingly popular; just make sure before you invest to test whether supporting documents, such as financial statements, are reasonably trustworthy.

Don't Use SSNs to Mess with the IRS!

2011-09-08T12:54:00.002-05:00

LONG before anyone had ever heard of Barack Obama, rumors of voter fraud in Chicago have run rampant. Examples of such rumors include voter registration drives at cemetaries and sayings such as "If you only voted twice, you are a slacker." Two tax preparers, one in NYC and one in Southern California tried their own variation on "Chicago" voting tactics--but their frauds found deep trouble with the Internal Revenue Service instead. Davis Johnson of the Bronx was sentenced to 63 months (over five years) in prison for such acts as including Social Security Numbers of dead children to inflate the number of exemptions claimed by clients. Meanwhile, Norma Cornell pleaded guilty to several felony counts of claiming 20 more children as dependents than what she actually had. Cornell also filed fraudulent tax returns for other family members and clients and potentially could recieve over 100 years of prison sentences for her frauds.

While Johnson and Cornell are extreme examples, either misstating number of dependents or falsely using a SSN of a deceased person to inflate exemptions is a comparatively easy return flaw for the IRS to catch. As the old saying goes: "Don't do the crime if you can't do the time."

Where Michele Bachmann Stands on Taxes

2011-08-30T15:01:00.002-05:00

Rep. Michele Bachmann (R-MN), has added a tax-cutting provision to her presidential platform. Rep. Bachmann called for elimination of capital gains and estate taxes, cuts in corporate tax rates and amnesty for repatriation of dollars earned (and "stranded") overseas. The Treasury disagrees with her holiday/amnesty repatriation argument, saying that past experience suggests that businesses would be more likely to pay higher dividends or pursue mergers and acquisitions as opposed to creating jobs with the additional repatriated cash.

The readers can come to their own conclusions on Ms. Bachmann's plan and plans of her Republican rivals (plus the President and any Democratic primary opposition which Pres. Obama would run into). The strengths of her proposals are getting something somewhat concrete out early and international competitiveness (corporate reduction). Potential shortcomings include impact on debt/deficit and somewhat tenuous tie between say capital gains/estate tax reductions and job creation.

With National Unemployment Rate Over 9%, Tennessee Needs New Accountants AND Accounting Teachers

2011-08-19T09:27:00.003-05:00

The Nashville Tennesseean reports that the faltering economy has in no way stunted the demand for accountants in the Middle Tennessee area. The article claims that accounting is growing at a rate in excess of 20%, that 90% of Middle Tennessee CPA firms will hire at the same or greater pace than next year and that Middle Tennessee University is having trouble keeping accounting faculty because of a nationwide shortage of Ph. Ds in the field. A 100% placement rate in Vanderbilt's Master's program indicates a trend towards getting master's degrees in Accountancy.

Selfishly, I would like for the Tennessean to have interviewed more universities, including Austin Peay. Selfishness aside, it is encouraging to be in a field where job opportunities abound without going through a North Dakota or Alaskan winter.

Newly Proposed Treasury Regs for Obamacare Premiums

2011-08-15T14:55:00.002-05:00

The Treasury Department announced Friday proposed regulations for tax credits for employees who purchased health insurance through Affordable Insurance Exchanges. The regs also assign $185 million in grants to 13 states plus D.C. to establish the exchanges. The exchanges would supplement employer-provided and government-provided health insurance programs and would generally support families earning 100% to 400% (generally about $22,500 to $90,000) of poverty-level income. Estimated benefits to employees/cost to taxpayers would be an average of $5000 per employee for 20 million Americans (NOTE: since the 20 million seems to include dependent children and stay-at-home spouses; the amount would be less than the apparent $100 billion.) It appears that this credit would be fully refundable, thus similar to the Earned Income Credit. Employee payments will be phased up as income increases. Additional regulations for employers regarding minimum required insurance value are forthcoming.

A lot of the reaction to this will be based on one's opinion of Obamacare. The comparatively least political reaction that I can come up with is: while the act adds 17-20 million people to the healthcare system; I see no indication that ANY new healthcare personnel will be added. Therefore, it looks to me like healthcare ACCESS may become a problem (or more accurately, larger problem--it is already difficult to find a physican willing to spend more than about 10-15 minutes per patient per visit) with the new law.

Nowadays, You Don't Have to Live in the U.S. to be a U.S. CPA

2011-08-09T15:39:00.002-05:00

An English-based U.S. CPA exam was given in the Eastern Hemisphere on August 1 for the first time ever in Japan and four small Middle Eastern countries (Bahrain, Kuwait, Lebanon and the United Arab Emirates). Over 1000 candidates took one or more sections of the exam. The AICPA cited increased demand from other countries (notably Japan) and claimed that over 3000 Japanese travelled to the U. S. last year to take the CPA exam.

I am sure that Canadians and probably accountants from Mexico and the island nations in the Gulf of Mexico and the Caribbean have been taking the U. S. CPA exam for some while, but this is significant new development. I see one advantage and one potentially significant danger; the advantage is that some American CPAs on long-term audits no longer have to make their way back to the U.S. for the exam. The danger--having seen outsourcing of numerous other jobs; one wonders if the exam will be expanded to countries such as China, India and Russia; and if so, whether large American CPA firms will supplant American CPAs for less costly overseas employees with the American CPA credential.

Revisiting My February Social Security Proposal in View of the Debt Ceiling Deal

2011-08-01T14:09:00.007-05:00

Social Security Death Benefit

February Social Security proposal

For better or for worse, the President and leaders of Senate and House have agreed to a tentative deal on the debt ceiling. It looks likely that the Senate will pass the proposed compromise; prospects in the House are significantly murkier based on a combination of liberal Democrats and Tea Party Republicans opposing the agreement for different reasons. Additionally, Moody's has suggested that a credit rating downgrade is still possible even with the debt deal because of insufficient firm budget cuts.

Back in February, I proposed a five-step solution to stabilizing Social Security--a combination of raising the base of income which is subject to the present 6.2% rate; a gradual increasing of age to qualify to 70 (for babies born after 2020) for full benefits and a phase-in (for those born between 1981 and 2024) to age 63 for limited benefits. Finally, I proposed elimination of the $255 death benefit which I believe has an excessive administrative cost for the actual benefit received and limiting minimum/floor benefits to those with at least 80 covered quarters (20 working years).

I still believe in this proposal but would make the following adjustments on the base and minimum benefits parts: for the income base provision--because of the shaky economy, I would phase-in the base increase to $140,000 in 2013, $175,000 in 2015 and $200,000 in 2017 with indexing of the base starting in 2019. Additionally, I would reduce the rate to 6.0% in 2015--this should provide some limited economic stimulus. On the minimum benefit side, I would also phase this in as follows: 48 quarters starting with those retiring in 2013, 56 quarters in 2015, 64 quarters in 2017, 72 quarters in 2019 and 80 quarters in 2021. This would give potential recipients who are 45 and older a longer time to plan and work toward getting the necessary number of covered quarters. Admittedly, these adjustments also reduce the level of stabilization accomplished by this plan; nevertheless, even this revised plan should significantly improve the long-term stability of Social Security over the present state.

New Apps for the Wired Accountant

2011-08-01T13:53:00.002-05:00

Brett Owens of the WebCPA/Accounting Tomorrow website cites two reasons that many software developers are starting to emphasize software on the Web vs. PC-specific software: ease of design and ability to access the app even when not at your laptop or desktop. Three new products which Owens feels have particularly impressive potential are Evernote, a web-based combination of post-it notes and the old Rolodex; Xero, a cloud-based future competitor for QuickBooks and Peachtree and Outright, a cloud-based alternative to bookkeeping which provides access to Web banking sites, credit cards sites and Paypal.

While I certainly cannot match Brian Tankersley, Gregory LaFollette and others in the accounting technology area, I do point out Mr. Owens article for those who wish to check out new trends in Web-based accounting products.

Tis the Season for State Sales Tax Holidays

2011-07-26T21:52:00.002-05:00

In a rite becoming quite commonplace over the last decade or so, at least 14 states will hold a "sales tax holiday" to encourage purchases for the back to school period. While clothing and school supplies make almost every state's list, some states also include computers. Additionally, some states waive sales tax on different items such as hurricane preparedness supplies at other times of the year.

While retailers love the sales tax holidays and crafty shoppers can save money, there is some question whether the holidays are effective from a macro perspective of social welfare. Perhaps "good old fashioned" price competition by retailers would provide just as good a deal to consumers as the tax holidays with a lower tax loss to state treasuries.

AICPA Offers IRS Assistance on Tax Preparer Exam

2011-07-11T15:01:00.003-05:00

NOTE: Thanks to Kay Bell for including the "Sun Rises in the East" post from June 29 in July's Carnival of Taxes at Don't Mess with Taxes.

AICPA Tax Executive Committee Chairman Patricia Thompson sent a recent letter to IRS Commissioner Douglas Shulman offering assistance by the AICPA in writing the exam for Registered Tax Preparers. Thompson emphasized AICPA experience in writing the CPA exam and planned to primarily test competence on individual tax issues. Thompson pointed out the need for an ethical component to the exam as well.

I cannot imagine the IRS fully subcontracting the Tax Preparer exam to the AICPA, but might agree to use the AICPA as one source of material.

Congress Discovers That the Sun Rises in the East: GAO Finds Link Between Tax Complexity and "Tax Gap"

2011-06-29T11:13:00.003-05:00

The Government Accountability Office recently released a study which indicated that the voluminous amount of content in the U. S. Tax Code and Regulations can lead to errors and understated taxes. While the GAO said that some of the complexity could lead to properly measuring income or identifying risk areas for noncompliance; they also said that compliance costs were in excess of $100 billion per year, that economic efficiency was doubtlessly damaged by tax complexity; that errors on the IRA deduction ALONE probably led to over $6 billion in underreported income and that, as Senator Hatch pointed out, complexity probably undercuts willingnes to comply. It should be noted that Senator Max Baucus deserves some credit for pointing out the potential kick-start to the economy that a less complex tax system might produce.

Ya think?! Numerous tax bloggers have already discussed tax complexity and its economic and compliance costs; perhaps (or am I being too optimistic again) Congress can be shaken to its senses by the possibilty that tax revenues might be "sitting on the table" while the U.S. reaches devastating levels of debt and deficit. I think that Mike Huckabee's and Neal Boortz' FAIR tax is politically a step too far (though probably not a bad idea theoretically) but certainly the GAO recommendations of eliminating some tax expenditures and standardizing IRS definitions are politically possible (though not necessarily sufficient).

Good Morning America: A Tax Twist on a Murder Mystery

2011-06-24T11:58:00.004-05:00

ABC Newswomen Ashleigh Banfield and Robin Roberts recently discussed an IRS tax lien against Casey Anthony as part of Casey's murder trial. Ashleigh was amazed to hear that Accounting Today (one of Tick Marks' favorite news sources) was covering the Anthony story as a result of the IRS lien.

It is almost embarrassing to see the lengths that American news media will go to increase viewership. Imagine, trying to liven up a boring "mother kills child" story with a saucy tax lien angle.

Courting: PWC, Junior Accountants and Overtime Suits

2011-06-20T14:18:00.004-05:00

PriceWaterhouseCoopers won a reversal in the U.S. Ninth Circuit (not always business-friendly) regarding whether professional accountants below the rank of senior were entitled to overtime pay under California state law (why was this not settled in state courts?). A U.S. District Court in Sacremento had originally found in favor of a class action suit brought by junior accountants.

For the large majority of CPA firms, I do not believe that there is a lot to be concerned about. Make sure that overtime is fairly assigned and that employees have reasonable opportunities to use "comp" time if applicable (some firms might have to liberalize "comp" time use rules). Promotion practices may also need a look; the most likely employee to bring such a suit is one who believes that he/she was unfairly passed over for promotion. However large CPA firms in the Northeastern and Pacific states might want to talk with an attorney (in-house or otherwise) to evaluate the risk of a comparable suit and possibly adjust firm policy accordingly.

What Will the TPIN Competency Exam Look Like?--A Reasonable GUESS

2011-06-13T15:23:00.007-05:00

The IRS has issued Notice 2011-48 asking for comments in regard to the new Registered Tax Preparer Competency Exam. The period for such comments runs through July 7 and IRS emphasized the following issues: approximate length and difficulty, level of disclosure to applicant regarding exam performance, frequency of administering exam, frequency of updating exam, time span between retakes for unsuccessful applicants, elements to include on exam and whether alternate languages to English should be allowed.

I do not pretend to be able to guess time span between exams for unsuccessful candidates, level of disclosure or frequency of updating exam. While I would be somewhat surprised if alternative languages are permitted (except Braille or ASL for disabled candidates); it is possible that there is enough Hispanic influence to have Spanish permitted. Frequency of exam figures to be 2-4 times per year and probably the same as the enrolled agent exam. This leaves appropriate length and difficulty and elements to include. One presumes that the test will not be as rigorous AND comprehensive as the EA exam--otherwise, why not simply require that paid tax preparers be EAs, CPAs or attorneys?

The alternatives that I can see as plausible are: [1] a quite easy exam, perhaps designed on individual topics only. This is the most cynical option which basically says that the whole purpose of tax preparer registration is money grabbing by Uncle Sam; [2] a moderate difficulty exam (but significantly watered down from the EA exam) which would allow registered tax preparers (hereafter RTPs) ability to practice individual income taxes (and possibly or possibly not partnerships, LLC/LLPs and S Corporations on a limited basis as well--probably not C corporations, trusts and gift/estate returns); [3] a similar scope to [2] but somewhat more rigorous (though still less rigorous than the EA exam). Under [3], there would be a higher likelihood that partnerships/LLCs/LLPs/S Corps would included in permitted practice for RTPs; [4] something like option [1] or [2] with a retest requirement (perhaps every five or ten years). Out of these options, I would think that [3] is the most likely probably followed by [2].

Please comment if you see additional reasonable alternatives or believe that my likelihood rating is flawed.

UPDATE: Joe Kristan (thanks for the link) thinks that I am a little naive.

Pondering TPIN Exam

PCAOB Chairman James Doty Philosophises on Auditing and the Future

2011-06-11T10:09:00.002-05:00

At the thirtieth SEC and Financial Reporting Institute Annual Conference, PCOAB head Doty pondered ways to make the audit profession more relevant, credible and transparent. Doty addressed the cultural impact of independence and skepticism and yet acknowledged that today's culture often places obstacles toward accomplishing these goals. Doty also hinted that changes may be coming in the style and substance of audit reports after an open meeting by the board this past March; mentioned that a proposal limiting the number of years which one audit firm could audit a specific client was under serious consideration; strongly urged auditors to be more forthcoming with audit committees and suggested that lead partners on audits might soon have to sign these reports in a similar way to how CEOs and CFOs certify financial statements.

Must-read material for anyone in auditing or financial accounting and probably worth the while of managerial and tax accountants as well. While at the University of Missouri as a doctoral student, I had the great opportunity to take a class with Dr. Joseph Silvoso, one-time president of the American Accounting Association. Dr. Silvoso would have been proud of Chairman Doty and his thought-provoking speech.

Did Your Favorite Local Nonprofit Lose Its Tax Exemption Recently?

2011-06-08T21:11:00.003-05:00

Over one-quarter million not-for-profits recently have lost tax-exempt status according to a recent IRS report. Most of the affected organizations were small and many may be defunct. The problem is that these organizations failed to file an information return with the IRS during the past three years. The requirement was triggered by a pension bill passed in 2006. The IRS has notified many small nonprofits of their need to file and has provided a $100 filing fee option to satisfactory nonprofits which wish to come good.

I am not a fan of the provision of the 2006 law which affects nonprofits with revenues under about $200-250 thousand; many such organizations simply have to use volunteer help with finances and that help may not understand the need for filing with the IRS. I do, however, give the IRS credit for trying to meet small nonprofits halfway (and in some cases, more than halfway).

IRS: Better Not Call Yourself a "Registered Tax Return Preparer"

2011-06-01T12:19:00.003-05:00

IRS Notice 2011 announced to tax preparers that they are not to refer to themselves as "registered tax return preparers" (I would assume that similar phrases like "registered tax preparer" would draw IRS ire as well) until they pass the IRS competency exam (not presently available). The notice also requires a suitability check for those in practice who pass the exam before being recognized as registered and will require those claiming such registration to disclaim special skills compared to other registered preparers (those living in Alabama are familiar with similar disclaimers).

Certainly this last notice does its best to prove Joe Kristan's point that federal oversight of tax preparers is not in the public interest. Banning the use of "registered tax return preparer" until passage of an exam two to three years from its first administration seems ludicrous--and who knows how "suitability" will be defined.

H & R [Block] vs. DoJ?

2011-05-23T19:12:00.002-05:00

The Department of Justice has announced that it has filed suit to stop the merger of Second Story Software and its TaxACT product with H & R Block, the large tax-preparer which markets Tax Cut software. The combination would mean that the merged company plus Intuit (TurboTax) would control 90% of the do-it-yourself tax software market. As expected, H & R Block called the merger smart and pro-competitive, while Second Story Software did not comment.

On the substance, the Justice Department position is reasonable here, a business segment 90% conrolled by two companies would be able to establish powerful barriers to entry. Additionally, H & R Block has hardly been a paragon of virtue, with its run-ins over Rapid Refund Loans. However, the Holder Justice Department hardly has been on best behavior either; albeit that most of its flaws have stemmed from political rather than economic calculations. In sports, the obvious solution would be a double forfeit.

What's [Happening] in YOUR State Board of Accountancy?

2011-05-19T09:43:00.003-05:00

Accounting Today/WebCPA reminded practicing CPAs today that State Boards of Accountancy have significant influence over the practice of accounting: sometimes for good (West Virginia's requirement of a "financial literacy" course in their high school curriculum), sometimes for bad (imposing sales taxes on services of Texas CPAs) and sometimes for trivial (Idaho's elimination of CPA oversight of lottery drawings) or bizarre (California's apparent attempt to hold CPAs responsible for the fiscal shortcomings of elected officals in municipal governments).

Other than the annual impact of Tennessee's "privilege" tax, I am not aware of any particular activities of Tennessee legislators on CPAs here. Having said that, never underestimate the willingness of legislators to attempt to make changes for the sake of making chances. The need to fix laws, whether or not they are "broke," must be a strong narcotic for elected officals.

Update: Thanks to reader Angela, two adjustments: [1] some items here are from state legislatures rather than state boards of accountancy, [2] some items listed above are proposed but not presently in existence.

Pensions and the Public Employee: Can the Unions Escape a "Union vs. Taxpayer" Position?

2011-05-09T10:46:00.003-05:00

Considerable news attention followed efforts by Republican governors in the Midwest, particularly Michigan and Wisconsin, to reduce state spending by cutting into pensions, tenure and other benefits of public employees, particularly unionized employees, of these states. After bruising but successful efforts by Republicans in these states; some Democratic governors, such as in Maryland, have adopted less stringent but still cost-cutting provisions in their states. In a period of tight budgets, compensation and benefits for employees have become a ready target as some economists have found that BOTH compensation and benefits are higher for public employees in comparison to private counterparts in numerous states.

As a public employee (state of Tennessee) myself, it has been distressing to receive no raise for the last two years; especially in view of what appears to be an increasingly inflationary future. That said, the best strategy for public employees seems to be a quiet, behind-the-scenes approach; in a season when many are having trouble getting jobs and where both state and the U.S. government struggle to get revenues to cover spending; the politican calling for cuts in state and federal budgets for employee benefits very easily may be more popular than a union head calling for greater benefits and protection of public employees.

Impending "War" [?] Between AICPA and IMA: This Way Lies Madness

2011-04-30T07:39:00.002-05:00

When I attended last year's IMA conference in Baltimore, I was puzzled by the non-recognition of CPAs in attendance and further confused by reference to opening of CMA firms in some larger cities. Yesterday, I read in the Tennessee CPA Journal that the AICPA was partnering with an international management accounting body (CIMA) to develop a designation within the CPA for management accountants and my reaction was--What are you DOING? It seems (and I would love to be told that I am wrong) that the AICPA and IMA are playing the part of a once-married couple which has split and have no problem with trying to one-up each other. As an accounting educator, I see no benefits in this for accounting students nor the overall accounting profession. It seems clear to me that the profession is not strong enough for what I consider to be unnecessary feuding and that even a subtle rivalry between the two organizations will not sit well, particularly with younger accountants.

Bring Out the Billy Club: IRS Threatens 19 with Loss of TPIN

2011-04-25T22:35:00.003-05:00

The IRS announced today that it was sending letters to 19 preparers with Taxpayer Identification Numbers to revoke their licenses. According to the IRS, each of the accused either of hiding a criminal conviction or of being previous barred from tax preparation. While those accused have 20 days to respond, this cannot be good news. IRS personnel indicated that this would be the first of several enforcement actions; that they next would look at tax returns without a signature for paid preparer or those where an identification number was either neglected or misused.

For the TPIN to have credibility, especially now that the TPIN test is pushed back to 2014, the IRS had to (and now has started to) take aggressive action toward those who misacted in a tax professional capacity. Whether this justifies the TPIN or not is ultimately a personal call; this was a necessarily though not automatically sufficient action.

"And Now It All Begins"

2011-04-24T12:21:00.003-05:00

Back in the 1970s, Alex Haley and Roots made mini-serieses a big deal, so I perked up my ears when NBC ran Franco Zefferelli's (probably misspelled) "Jesus of Nazareth." Many dramatic presentations of Jesus's life in that era stopped at the cruxifiction; thus I was presently surprised when the mini-series kept going to the resurrection and subsequent weeks after. Near the end of the final episode, a sentry told a member of the Jewish Sandhedron (spelling again?) that Jesus's body was not in the grave and the leaders sighed and said, " and now it all begins." He was right--but with cause for hope and not despair--in an extremely cynical world, one easily could lose all hope and all hope for justice, but belief in that tomb being empty CAN provide hope that evil and cruelty will not always carry the day.

Welcome Back, Tax Practioner Bloggers

2011-04-18T23:10:00.002-05:00

The tax season offically ended today and many fine bloggers, such as Russ Fox of Taxable Talk and Robert Flach of the Wandering Tax Pro, should soon be back and blogging at full speed ahead. On the other hand, projects, finals, etc. are about to make a major dent on my blogging between now and May 6.

Before I go, I wanted to commend the North Alabama faculty on putting on a fine SOBIE conference at Destin, FL this past week. I co-presented three papers and listened in on a number of other well-done papers. I enjoyed having no less than half a dozen other APSU faculty with me.

Boehner and the Art of Caucus Maintenance

2011-04-09T15:11:00.003-05:00

My military friends are celebrating the budget deal last night for good reason; there was real concern last night as to whether they would get a full week's pay next week. The deal cuts about $38 million from the FY 2011 budget but leaves out most of the "riders" that upset Democrats, including defunding of Planned Parenthood and restrictions on the EPA. While President Obama was upbeat Saturday morning (and had probably cut his losses significantly by being able to show active involvement in the finished product), the almost certain winner was John Boehner, who got the first actual cuts in a Federal budget in my lifetime. Boehner's key successes--keeping most of the "Tea Party" right on board by keeping them apprised of negotiations and letting go riders which could wait for another day.

While Operation Rescue and Michelle Bachmann may not be on board with the final compromise and the Media Matters/"professional left" are almost certainly less than thrilled, the compromise is indeed a reasonable first step. Even the happiest parties; however, have no illusions about the difficult negotiations associated with the increase in the debt ceiling and the FY 2012 budget.

Plucking the Low-Hanging Fruit: Congress Backs Away from Health Care 1099s

2011-04-05T23:08:00.005-05:00

By a 87-12 (wonder who the twelve were?) vote, the Senate passed House-based legislation to repeal the "Obamacare" requirement that required businesses, charities and state and local governments to provide Form 1099s to many vendors if annual purchases reached $600 or more. Praise came from executives of the AICPA and the National Association of Accountants.

This is the easy part of dealing with last year's health care legislation. For here out, things grow much more contentious, perhaps starting with this week's attempt to avoid a government shutdown. While Republicans believe that independents as well as their base want either elimination or at least massive rework of the legislation, Democrats are equally convinced that this law will work to their benefit in time.

Ways and Means Democrats: Let's Add New Debt

2011-03-11T09:50:00.003-06:00

Leading Ways and Means Democrat Sander Levin (MI) has submitted H.R. 992, the Building America Jobs Act, to support bonds enabling $181 billion in infrastructure spending. The bonds would subsize spending at about 30% on hospitals, water and sewer systems, intracity buses and similar infrastructure assets and continue tax incentives for Recovery Bonds, municipal water and sewer bonds and low-income housing.

Apparently Mr. Levin did not get last November's memo on the present level of Federal spending and Federal debt. While many of the proposed items may have value in a vacuum, the present U. S. financial position hardly qualifies as a "vacuum" these days.

Tea Party Likes Tax Simplification

2011-03-07T14:25:00.002-06:00

Accounting Today reports that reforming the Internal Revenue Code to make it simpler and easier to understand has gained support about Tea Party activists and a number of key conservative Republican lawmakers. Michele Bachmann (R-MN) has proposed the "End Tax Uncertainty Act" which would eliminate the Alternative Minimum Tax (AMT) and make the "Bush" tax cuts of the past decade permanent. This goes beyond the AMT proposals of heavy-hitters Mike Pence (R-IN) and Jim DeMint (R-SC) but Bob Goodlatte (R-VA) and Georgia Republicans Saxby Chambliss and Bob Woodall would go even farther and eliminate the present income tax system, probably replacing it with a national sales tax. Democrats have some proposals of their own, most of which either provide tax savings for schoolteachers or raise taxes on high-income taxpayers.

Tax simplification is certainly an attractive proposition given the present state of the IRC and associated regulations and court results. That said, it is only slightly cynical to say "I'll believe it when I see it."

Improving the Solvency of Social Security: A Proposal (at Least for a Starting Place)

2011-02-21T10:49:00.002-06:00

It appears that at least some people have come to the realization that economics is the allocation of SCARCE resources. Given the present budget deficit and the potential for the Social Security "Trust" Fund to go broke in the next 30 years, I propose the following: [1] Raising the base for payment of Social Security taxes to $200,000 (base adjusted for inflation starting 2013); [2] Raising the age to collect "full" benefits as follows: increase one month for those born 1952-54; two months 1955-57; three months 1958-60 (disclosure: I was born during one of these periods) until 24 months around 2021 for age 70); [3] raise age for "reduced" benefits as follows: one month if born 1981-84, two months if born 1985-88, etc. to twelve months (new age 63) if born 2025 or after; [4] eliminate the token death benefit to reduce administrative costs; [5] while 40 covered quarters still qualifies for benefits, raise the required covered quarters for minimum benefits to 80 covered quarters.

This may not be sufficient and I'm sure that some will be unhappy with a facet or facets of the proposal. I wish I had similar proposals for Medicare and Medicaid, but simply do not know medical costs well enough to comment.

CPAs in Congress? Who Knew?

2011-02-14T14:04:00.002-06:00

Brad Sherman (D-CA) and Michael Conaway (R-TX) announced the founding of the Bipartisan Congressional CPA Caucus in the US House of Representatives. Sherman and Conaway will co-chair the caucus, which also includes five other Republicans (three of whom are newbees) and Democrat Collin Peterson of Minnesota (wow, at least eight CPAs in Congress). The caucus, which will be informal, will attempt to discuss and promote a CPA perspective on tax administration, accounting and auditing standards and budget issues.

I congratulate and commend the CPA caucus and hope that they can influence both parties towards fairer tax administration, balanced accounting standard-setting and more reasonable spending budgets.

Businesses looking at a higher base to pay unemployment taxes on--I think

2011-02-09T17:58:00.002-06:00

The Obama administration has proposed new rules that will subject employers to paying state unemployment taxes on the first $16,000 of earnings per employee per year. The standard amount per employee per state at present is $7,000, although an increasing number of states have gone to a higher base in the last few years to deal with high claims for unemployment insurance as well as state budget deficits. The plan does defer certain interest on state borrowings from the Federal Government on unemployment benefits until 2014 and an increase in the Federal unemployment tax rate until the end of next year.

Do not be surprised to see not only an adjustment in salary subject to unemployment taxes but a proposal to increase the maximum amount of salary subject to the old age (6.2%) portion of FICA. Conventional political wisdom is that expanding the tax base tends to be less controversial than increasing the tax rate.

Timidly returning the toes to the blogging waters

2011-02-09T17:51:00.002-06:00

While not SURE that I am fully ready to return, I am ready to come back on a limited basis. Expected about one substantative post per week between now and May 10, with some weeks getting two or even three while others get none. With this being tax season, I will probably do mostly tax blogging, but definitely some of the posts will be of an accounting/auditing nature. Who knows, there might even be a personal finance post or (considerably less likely) two.

Suspending Tick Marks

2010-11-22T22:17:00.003-06:00

In what I hope to be a temporary situation, I will be suspending Tick Marks until probably mid-February. I thank all my readers and give special thanks to Rick Telberg and Rasmussen College for their recent kind words about this blog. I apologize to those who have become used to "The Twelve Blogs of Christmas;" hopefully, that feature will run next year. I have had an extremely busy semester this fall and am a little burned out--I hope that 2-3 months away will help. A sign that I am likely to be back--if you see me post on blogs such as Roth CPA Updates or update my blogroll--most likely after Martin Luther King, Jr. holiday. If I am not back by the end of March, you can consider the situation ominous. While I am away; I encourage you to read the very good blogs and other material referenced at right. Anticipate that any comments to this post left after Thanksgiving are likely to be spam.

The Deficit Commission (Bowles--Simpson) Speaketh

2010-11-10T21:14:00.004-06:00

President Obama's Deficit Reduction Commission--co-chaired by Erksine Bowles of the Clinton administration and former Senator Alan Simpson (R-WY) brought forth their first recommendations today--and the report was nothing if not breathtakingly audacious by Washington standards. There were numerous budget-cutting proposals such as an increase in minimum age for full Social Security benefits to 69 by 2075 and a three-year freeze on most spending which brought catcalls from the more liberal parts of the Democratic House and Senate. Nevertheless, the more salient part of the proposal for this post was the tax language. A la 1986 rates would be lowered and limited to three rates, but virtually all deductions and credits, including the popular mortgage interest deduction, would be eliminated.

It is probably wise for the chairmen to claim this as a starting point--even given the results of last week's election, there is little chance that the present proposal will survive intact. While the proposal deserves high praise for attempting to simplify tax law, I am somewhat concerned that the proposal appears to eliminate deductibility of charitable deductions. Given the present shaky economy, the not-for-profit sector needs to grow, not shrink.

If You Can't Make March Madness,,,

2010-11-01T16:39:00.003-05:00

Thanks to Rick Telberg for including Tick Marks in his "64 Tax Blogs for Geeks and Wonks"--though I am probably closer to a nerd myself.

SEC: Where We Stand on IFRS Convergence

2010-11-01T15:54:00.002-05:00

SEC Chief Acccountant Jim Kroeker recently announced the first progress report on incorporation of International Financial Accounting Standards into American standards. Six key areas were addressed: sufficient development of IFRS for use in American reporting; maintaining independence under IFRS; investor education regarding IFRS; determining the impact on accounting regulation that IFRS would create; the separate impacts of IFRS on small and large businesses, including information systems, governance and litigation and finally the impact on human capital. Kroeker believes that the SEC is making good progress, but expressed some concern that federal regulatory bodies, including those overseeing the financial industry, might have difficulties meeting present targets.

I still have misgivings about rushing into IFRS, but realize that the U. S. is to adopt international GAAP that the work described here is necessary. Hopefully, a full plan, including a framework for accounting standards for small and privately-held businesses, will be implemented before committing to IFRS.

"You Mean I Can Actually Understand an IRS Form?" Well, Maybe

2010-10-28T07:34:00.003-05:00

President Obama recently signed the "Plain Writing Act", which requires correspondence from federal agencies, such as the IRS, to be written with as little "legalese" as possible. Bruce Braley (D-IA) authored the legalization which passed the House by 341-82, a stunning margin given the present hyperpartisan election climate. After objections by Robert Bennett (R-UT) were overcome, the Senate passed the bill by voice vote. An unfortunate caveat: while IRS forms hopefully will be easier to read, no such law was passed requiring that the IRC, regulations or future tax legislation had to be in "plain writing."

Congratulations to Congress for at least attempting to improve understandably of IRS correspondence. Nevertheless, taxpayers are likely to benefit to a greater degree than tax professionals.

Annual AICPA Tax Award Given to Creighton Tax Professor

2010-10-28T07:21:00.003-05:00

My apologies for the long gap between posts.

Thomas Purcell III has been honored with the Arthur Dixon award by the American Institute of CPAs. A former practitioner with Touche Ross, Purcell serves on numerous AICPA committees and the editorial board of The Tax Adviser. Purcell has won a number of important teaching and service awards and has authored a book and numerous articles.

Congratulations to Mr. Purcell on his accomplishment.

AICPA Broadens Potential Membership

2010-10-13T07:17:00.002-05:00

The American Institute of Certified Public Accountants voted, by about a 9-2 margin, to expand the pool of potential members by mildly relaxing requirements for membership. Potential applicants now can qualify for membership by being a licensed or inactive CPA and two new categories: a previously-licensed CPA who is no longer licensed for reasons other than behavioral sanctions (examples: retirement, health or financial crisis) and those who passed the exam, met educational and experience requirements but never applied for a license. AICPA Chairman Robert Harris said that a major reason for the change is that about half of CPAs no longer work in CPA firms.

An interesting change, to be sure--and one wonders if part of the reason for the change is to compete with an increasingly aggresive Institute of Management Accountants. Will be interesting to see to what degree these changes generate increases in membership.

Dan Alban of the Daily Caller Provides Support for Joe--and for Robert, too

2010-10-08T13:38:00.005-05:00

One of the ongoing activities of the tax blogosphere is the debate between Joe Kristan (Roth CPA Updates) and Robert Flach (Wandering Tax Pro) on the merits of the new licensing/identification requirements of the IRS. Mr. Alban weighs in on the side of Joe on the regulation in general, saying that it fixes something that wasn't broke and that the new procedure has potential for political abuse in the future. Mr. Flach does not go away empty-handed, however; the writer criticizes the IRS for favoring attorneys and CPAs (strong implication: connectedness of their lobbyists) over others who have been preparing returns for years and even decades.

The author writes a thought-provoking piece which finds most of the flaws in the new regulation. Time alone will tell whether Mr. Alban's concerns are well-founded.

AICPA Wants New Standards Board for Private Companies

2010-10-04T18:03:00.003-05:00

AICPA President Barry Melancon has called for the Financial Accounting Foundation (FAF--parent organization for FASB and GASB) to establish a new accounting board for private companies. Melancon cites preliminary work of the "Blue Ribbon Panel" from members of the AICPA, FASB and NASBA (National Association of State Boards of Accountancy) would lead to standards quite different from either U. S. GAAP or IFRS. It should be noted that the IASB has already published its effort at private-company standards (IFRS for SME) and that a poll of accountants taken by WebCPA opposed separate standards for private companies 55-42.

Oh, the headaches here. Let me start by stating that private companies in excess of approximately $100 million in capitalization should be subject to either full U. S. GAAP or IFRS to be consistent with their large public company brethern. For small-to-medium sized private companies--there are no good options; anything leads to different standards from larger companies and it is not clear how the cost-benefit tradeoff of convenience vs. reduced usability measures out until you get to very small (less than $5-10 million in capitalization) companies. Hope that David Albrecht and the Summa has some thoughts on this.

Lame Duck Vote on "Bush Tax Cut" Extension Coming

2010-09-27T14:15:00.002-05:00

Senator Dick Durbin (D-IL) and other key Democrats appeared ready to defer votes on legislation extending the tax cuts scheduled to expire at the end of this year until after the November 2 election. Positions taken by party leaders were completely predictable: Democratic leaders want to limit cuts to taxpayers making less than $250K if MFJ or $200,000 otherwise (called "middle class tax cuts") while Republicans called for all cuts to be extended for at least one more year in view of the suspect economic recovery (technically NOT a recession).

It is disappointing, if hardly surprising, that tax preparers are left guessing at major facets of the tax code until less than two months from tax season. While Republicans probably are not totally blameless, the majority party has to take the largest share of the blame here--they simply did not have the courage to risk either voter reaction to a vote on the limited extension or reaction of key supporting blocks if they fully extended the cuts.

Paging Everett Dirkson: What's a Billion Among Friends?

2010-09-22T13:41:00.002-05:00

NOTE: My apologies for the long period between posts.

A report by the Treasury's Inspector General indicating that the Internal Revenue Service turned down the TIGTA's recommendation to freeze refunds on taxpayers with potentially invalid Earned Income Credits brings to mind the quip from former Senate Minority Leader Dirkson (R-IL) during the 1960s--"a billion here, a billion there and soon you are talking real money." TIGTA claimed that the EIC is vulnerable to fraud and that the IRS needs to take better advantage of third-party data and to improve procedures for checking EIC claims.

While understanding that the IRS has numerous expectations placed on it by the Washington powers-that-be, treating potential fraud with the EIC as a minor problem is not a satisfactory solution. Put another way, the IRS response here, if seen on a tax return audited by a revenue agent, would be at risk of a negligence and possibly even constructive fraud penalty.

Obama: Let's Increase the Easy R & D credit to 17%

2010-09-09T08:27:00.003-05:00

President Obama has proposed increasing the "simple" form of the research and development credit from 14% to 17%. Obama called for a permanent extension of the credit, stating that the credit could help in developing more high-paying jobs. Obama also continued to press for extending the Bush-era tax cuts only to middle-income Americans, claiming that extension of the cuts was too important to let disagreements about whether tax cuts should continue for wealthy taxpayers to delay the extension.

Is this the right route to go? I am not sure--while encouraging research is a good thing, does this simplify the tax code or not? On the other issue, I am inclined to favor Minority Leader Boehner's (R-OH) call for a two-year universal extension of the "Bush" tax cuts.

Carnival of Taxes #74

2010-09-09T08:26:00.002-05:00

Kay Bell was kind enough to include last week's "Drilling Down" post in Monday's Labor Day Carnival of Taxes.

XBRL Compatibility Suite: Preparing for the Second Level of XBRL

2010-09-03T22:28:00.002-05:00

XBRL US just released the XBRL Compatibility Suite, designed to help users do a better error-check, improve peer documentation, more complete tagging of footnote documentation and compare documents developed for the 2009 XBRL taxonomy release with new requirements in the 2011 taxonomy pre-release. A powerful endorsement comes from Louis Matherne who claims that FASB uses the suite as part of their taxonomy maintenance procedures.

While smaller businesses are unlikely to need XBRL, mid-size publicly-traded busineses and larger business (even privately-held) would be advised to at consider the Compatibiilty Suite. The comparison feature between the 2009 taxonomy and the proposed 2011 taxonomy sounds like a particularly valuable part of the new suite.

Drilling Down on the Registered Tax Preparer Regs

2010-08-30T16:49:00.002-05:00

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

2010-08-19T15:47:00.007-05:00

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?

2010-08-17T10:49:00.004-05:00

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

2010-08-17T10:06:00.002-05:00

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

2010-08-09T07:12:00.003-05:00

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?

2010-08-05T18:24:00.003-05:00

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

2010-08-05T18:10:00.002-05:00

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

2010-08-04T11:35:00.002-05:00

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!

Taxpayer May Not Be Properly Notified of IRS Liens

2010-07-29T07:23:00.003-05:00

The Treasury Inspector General for Tax Administration (TIGTA) noted in a recent report that taxpayers and their representatives may not be receiving proper notification when tax liens are issued. TIGTA found that 2 of 125 liens may not have been properly sent to the taxpayer and 6 of 31 (31 of 125 taxpayers had valid authorized representatives) liens were not properly sent to the representative. Using direct projection, TIGTA estimated that over 15,000 taxpayers might been affected by personal failure to be notified and about 60,000 representatives may not have been fully prepared by IRS notification.

The failure to notify representatives is more significant than it might appear; many taxpayers are quite dependent on their representatives/preparers on tax issues. In some ways, this finding is not as bad as it looks (TIGTA estimates that over 98% of taxpayers undergoing liens are properly notified) but for those who are not properly notified, an already intimidating prospect becomes even scarier. Of course, taxpayers could pay their taxes (or send appeals for compromise if in awful financial straits) and avoid the lien in the first place.

Tax Foundation Tax Estimator

2010-07-29T07:11:00.003-05:00

The Tax Foundation, a libertarian/conversative-leaning organization which publishes the Tax Policy Blog linked at right, has developed a calculator which allows users to estimate their upcoming tax liability under three scenarios: all "Bush" tax cuts are retained (recently proposed by three moderate Democrats), all "Bush" cuts go away (the default if Congress does nothing) and the "Obama" budget plan (selective cuts are kept, others expire). One should keep in mind that this will only provide a estimate of the upcoming taxes; nevertheless, this could be an useful tax planning tool.

How Will the Financial Reform Act Affect Bank Customers?

2010-07-26T12:22:00.003-05:00

An analysis of the Financial Reform Act by AccountingWeb shows a variety of impacts on financial activity--some clearcut, such as the elimination of SOX for certain small public companies and a significant tightening of interest-only loans and prepayment penalties on mortgages while others are more subtle--some unclear degree of limits on hedge fund and derivative trading by banks. The Consumer Financial Protection Agency has been given a sizable amount of power and banks are likely to need to have additional legal compliance officers.

As indicated in previous posts, any increase in government regulations given the present weak economy makes me somewhat nervous; having said that, I also recognize that only BP stands in lower public regard than the large banks today within the business community. Hopefully, the tighter regulations will not dry up the willingness of banks to lend to individual consumers of middle-quality credit; however, don't be surprised to see "tight money"; which would further endanger the shaky recovery.

$50 to Register with US Government as Tax Preparer

2010-07-22T15:27:00.002-05:00

Recently issued IRS proposed regulations include a $50 technology fee to register with the IRS as a tax preparer. Additionally, a smaller fee appears likely for online access. While the link to the actual proposed regulation was broken, it APPEARS that the fee is a one-time fee.

While this fee on the face is fairly innoculous, an equity question is raised. Traditionally, the IRS has limited direct preparer representation of taxpayers to self, spouse, business "partner", officers of a business or appropriate representative of estate or trust, direct preparer in some cases, enrolled agent, CPA or licensed attorney. Given that tax preparers who not EAs, CPAs or JDs will be paying this fee, equity suggests that they should now be eligible to directly represent taxpayers. Whether this should happen from a professional perspective is likely to generate similar debate to that raised by the testing requirements of the new taxpayer PIN registration--I look forward to seeing the tax bloggers comment on this issue.

SOX Undarned--$75 Million Exemption for Smaller Public Companies Likely

2010-07-22T15:11:00.003-05:00

The North (San Francisco) Bay Business Journal is predicting that Congress will exempt public companies with capitalization of less than $75 million from certain audit requirements--including an audit of internal control. The provision, intended to be "permanent", is likely to be included in Congress's financial reform legislation.

I have mixed feelings about this decision. The first facet involves government regulation. As stated in earlier posts, I believe that the federal government generally overregulates business and that overregulation has slowed economic growth and perhaps even led some companies to list in non-US exchanges. On this facet, Congress deserves commendation. On a second facet, Clark Keeler (interviewed in the article) raises a good point--Sarbanes-Oxley has effectively become "best practices" in internal control development and disclosure and companies failing to reach the SOX standards stand at risk of higher interest rates, lower bond ratings and/or lower stock market prices. Therefore, I hope that "small" public companies which opt out of explicit SOX compliance will still attempt to achieve SOX compliance on auditing issues, especially internal control.

An Appeal to Slow IRS 1099 Regulations

2010-07-14T10:52:00.003-05:00

Democratic Senators Evan Bayh (IN), Paul Begich (AK), Ben Nelson (NE) and Jeanne Shaheen (NH) have called on the IRS to find ways to keep the new health-care (often called Obamacare) reporting regulations from overwhelming small businesses. A particular concern is a provision which requires the filing of 1099s to vendors which have sales of over $600 to healthcare providers during the year. The Senators encourage the IRS to find ways to reduce the paperwork burden; perhaps by allowing healthcare providers to consolidate this information with other paperwork.

We applaud these predominately moderate Senators for taking important first steps toward realizing the damage that heavy Federal regulation has done to American economic activity--including employment levels. Sadly, many Democrats and no small number of Republicans still need to get this "memo."

PCAOB Attempts to Upgrade Confirmation Standard

2010-07-14T10:33:00.002-05:00

The Public Companies Accounting Oversight Board has proposed a confirmation standard to supercede present AU 330. Daniel Goelzer of PCAOB says that the new standard would modernize confirmation requirement, increase the focus on confirming with independent third parties and more explicity address risks of errors and frauds. Interested parties have about 60 days for public comment before the new standard is sent to the SEC for consideration.

Confirmations have been a hallmark of audits for decades now. While it is not clear how the new guidelines will put greater emphasis on independent parties; the increased focus on fraud and errors is consistent with recent auditing standards such as SAS 99.

10 Commandments [??] for CPA Practice

2010-07-07T15:39:00.003-05:00

Connecticut CPA William Brighenti gives his insights into how to succeed in the business practices of a CPA--though at times it is hard to tell whether the advice is spoof or serious. The first five edicts: hire good-looking accountants, pay a salary rather than hourly wage to avoid overtime costs, keep the hope of partnership alive to keep the accountants eager, try to take jobs on a retainer and quote an hourly cost rather than a total cost. The final five assertions: let the hired staff handle the telephone, charge the maximum possible, be vigilant against fraud and deceptive financials, avoid sitting on charitable boards and pay only for results, not promises.

Specific topics (reducing telephone use and being vigilant against fraud stand out) are of value and admittedly Brighenti's ideas will increase profitability--but probably only in the short run. If serious, Brighenti is too cynical by half; if spoof, the piece is well executed.

Some Love for Kay Bell and the Carnival of Taxes and a Warning to Those with Spam Posts

2010-07-05T09:04:00.005-05:00

[1] I dropped the ball and did not submit this month, but Kay Bell deserves commendation for continuing to publish Don't Mess with Taxes which presently is on a monthly basis. The carnival will probably be out this afternoon and includes a variety of tax tips of legal, policy and personal finance natures. Kay has been kind enough to link to several dozen of my posts during the Carnival and I believe that reading today's carnival will be worth your time.

[2] As strongly as I can make this point, I want to discourage spammers in the comments section (have I been too lenient on close calls in the past?--perhaps). At the risk of appearing to be a xenophobe, I ESPECIALLY will pull posts written in languages other than English (unless an English translation is included--I still may pull it anyway if I am dissatisfied). With non-English language posts, I literally do not know whether the commenters have a valid point or whether they are promoting a spam, pornographic or phishing site.

UPDATE (July 22)--I have now required word verification to reduce spam. My apologies for inconvenience to legitimate commenters.

The Homebuyer Credit: What [Else] Could Go Wrong?

2010-06-23T12:41:00.002-05:00

The Treasury Inspector General for Tax Administration (TIGTA) just reported that about $9 million in homebuyer tax credits were claimed by prisoners. Additionally, over 80 IRS employees made errant or fraudulent homebuyer credit claims. Overall, over 14,000 inappropriate credits have been allowed, including 2,500 for purchases prior to the credit's inception. TIGTA said that this development was "very troubling" but did give the IRS credit for working to reduce some abuses from the earlier stages of the credit. One example: no minors claiming the credit were found in this investigation.

At best, the Homebuyer's credit had marginal justification in attempting to stabilize the housing market and put brakes on the depths of the recession on 2009. With the economy doing slightly better and evidence that the IRS is having difficulty policing abuses of the credit; it appears that the only significant remaining beneficiaries of the credit are realtors and certain politicians.

Father's Day

2010-06-20T10:23:00.002-05:00

For the last several days I have been "batching" it with two dogs while my wife has spent time with her mom. One of the dogs, "Maggie," is a ten-week-old golden retriever and still has many things to learn. I'm afraid that I have not had much patience with her; making me wonder whether I would have been much good as a dad.

Dads do not have the easiest role in society today--and certainly one not nearly as respected as in my younger years. The dad is the most common butt of jokes in family sit-coms (Cliff Huxtable nonwithstanding), marketers surely put less effort into Father's Day vs. Mother's Day and elements within the feminist movement are quick to point out the failures of some dads and in effect spread the brush to others (not that this excuses parental neglignece or abuse--whether from dad or mom).

Yes, there may be some among my readers who need to get off their rump and start trying to reconcile themselves to sons, daughters or both. To the larger portion of my father readership and the tens of millions of men throughout the country who at least try (if not always succeed) to take Dadship seriously, Happy Father's Day and may God bless--especially Don Meyer, my own dad.

When to Carry Debt--Not Necessarily Approved by Dave Ramsey

2010-06-16T23:06:00.002-05:00

Yahoo's Jeff Brown contrasts concerns with the Federal Budget with personal budgeting issues in this article. Brown points out that one lesson to learn from the Feds is to NOT use ahort-term debt to cover long-term responsibilities. Brown also argues that while an emergency situation can justify serious debt, "emergency" must be carefully defined so that vacations aren't defined as emergencies. Brown argues that only homes and education justify debt and that credit cards should only be used for convenience and timing, not as a source of funding.

I am generally satisfied with Brown's commentary, though he may be slightly more willing than I to borrow for a basic automobile. One additional point--do not borrow for education unless you have a specific plan--including both course of study/major and plan for employment after your education.

Wrapping up the 91st IMA National Convention--Tuesday PM, Wednesday AM and a Brutal Trip Home

2010-06-16T22:49:00.002-05:00

Four solid to very good sessions to wrap up the convention: Tuesday afternoon featured Mark Frigo who did a good job of explaining how corporate governance and ethics not only could but needed to fit with the strategic plans for a company, Mark was followed by Sam Weaver who had a quite interested quiz on estimation as part of Risk Analysis in Decision Making. As a former executive with Hershey Company, Sam further endeared himself to many in the audience by passing out Hershey's candy.

Anirban Basu kicked off Wednesday morning with an analysis of the American economy. He stated that recovery had started but that the recovery was not robust. The session was not quite as good (but close) to David Walker's presentation last year and was certainly worth attending. The convention concluded with IMA favorite motivational speaker Nobby Lewandowski. Nobby, who also spoke last year, is a CPA and former baseball player who has overcome a serious stuttering problem to become an accomplished speaker. One of his techniques is singing (shades of Jim Nabors and (to my surprise) Carly Simon)--this year's songs were "Swinging with My Baby (Mr. DJ) and YMCA". Freed from the expectation of a primary ethics content, Nobby's presentation was an enjoyable conclusion to the conference.

The trip home included a failed A/C--not a big problem on a rainy/cloudy Wednesday evening but a BIG problem Thursday driving from Morgantown, WV to Clarksville (about 550 miles).

91st National IMA Convention--Tuesday AM

2010-06-09T09:33:00.002-05:00

A combination of car problems (eventually requiring a $300 repair) and several frustrating problems with getting a light rail ticket caused me to miss the 9 am session by a previous CFO of Health South. Apparently it was quite good--the speaker had a sizable line to sign copies of his book.

The 10:45 session involved a panel moderated by Nevada finance officer Kim Wallin and including Mike Schlanger, Mark Montoya and Mike Willis on XBRL (standardized business reporting) was quite good. Willis of PWC was particularly good--he compared SBRL to the bar codes used in inventory control and pointed out that XBRL actually could facilitate (rather than complicate) convergence with IFRS.

Our luncheon speaker (the entree was chicken--surprise, surprise) was Annebel Beeren of Southern New Hampshire. She talked about facing new raalities and having the courage to adapt to change. She pointed out that "encourage" literally involves raising the courage of those around you. Ms. Beeren tended to be a shade theoretical at times and her presentation can best be described as solid but not spectacular.

91st IMA National Convention- Monday pm

2010-06-07T20:36:00.003-05:00

A second very good session to start afternoon festivities--Peter Brewer and Doug Calhoun made an excellent case for teaching accounting students leadership skills as part of their education. A primary part of their argument--leadership and interpersonal are as valuable to a new hires long-term career as technical skills. Their primary components of leadership are vision or influence, motivate, enablement and integrity.

The second afternoon session was lead by Julia Trugman-Nikol to demonstrate the importance of documentation of human capital in a business before key people leave or retire. Her concepts were well thought-out but her handling of questions (including one of mine) did not impress, thus I can only give her a fairly decent rating.

91th National IMA Conference--Monday am

2010-06-07T12:17:00.003-05:00

The mid-morning session of the conference likely will be one of its best--Dr. Marianne Jennings of Arizona State talked about the frequency and cost of ethical lapses in business. She pointed out that the culprits usually are aware that what they are doing is "not quite right," that many, many people disconnect between their beliefs as to what is ethical and what they practice and many reasons why ethical behavior is the best long-run policy. Though much of her talk was the same as last year in Denver; the message still reasonated.

After an exhibitor break, brown-bag luncheons were up next. While eating box lunches we self-placed at tables with about 100 potential topics. I did not choose well and lost interest after about 20 minutes. Hopefully, my choices on concurrent sessions this afternoon and tomorrow afternoon will be better.

91st National IMA Convention--Prelude

2010-06-07T07:43:00.003-05:00

About to start my second year of blogging the Institute of Management Accounants annual conference--this year in Baltimore, MD. Drove up during the weekend and made brief visits to Fredricksburg and Chancellorsville Civil War battlefields yesterday. No points for Washington, DC or Baltimore drivers--traffic was NO fun either yesterday or today. Today features the brown bag luncheon; I also believe that last year's star speaker does another presentation on ethics this morning. More on today's festivities later.

Tax Effects of the Unemployment Benefits Extension

2010-05-29T10:42:00.002-05:00

The House of Representatives, not surprisingly and with a vote more or less along party lines, which would extend added unemployment benefits to chronically unemployed workers to November. There are a number of tax provisions associated with the bill--some helping selected taxpayers while others increase taxes or reduce availability of tax credits.

Bill provisions favoring taxpayers included extension of the R&D credit, school teacher supplies deduction and extension of the option of taking sales taxes in lieu of state income taxes. Other provisions included tax breaks for businesses in low-income areas, near Native American reservations and whose who hire active military reservists. By way of counter, hedge fund managers are potentially subject to higher taxation and certain multinational corporations will find a harder road using the foreign tax credit. Somewhat surprising, it does not appear that the "annual" AMT patch was included. Fox News estimated a net $30 billion addition to the deficit.

This one is pretty much a "taste and preferences" bill; advocates of the unemployed will cheer; tea partiers, not so much. One thing appears to be certain; simplification of the tax code was not a priority of the bill's crafters.

PCAOB Access to Foreign-Based Firms Appears Limited

2010-05-20T13:21:00.003-05:00

Legal obstacles are preventing the Public Companies Accounting Oversight Board from auditing foreigh-based firms using foreigh auditors (even if the firm has a U. S. counterpart) which are listed on U. S. stock exchanges. Over 400 firms from 21 countries are affected; two leading examples are Alcatel Lucent of France (telecommunications) and British Sky Broadcasting (related to the Fox network, including Fox Business and Fox News Channels in the U. S.).

U. S. auditors of SEC clients and CFOs of companies subject to the PCAOB could be understood if they were less than thrilled that some U. S. stock exchange members did not face the same financial reporting scrutiny which they face. A reasonable solution: use something akin to the tax treaties used by IRS and foreigh tax authorities to resolve which country gets to tax specific business income.

Some Good News from "Obamacare" for Small Businesses

2010-05-17T19:19:00.002-05:00

The Internal Revenue Service recently announced that both state and federal tax credits can be taken on qualifying health insurance expenditures and that these credits extend to dental and visual insurance. Small businesses can claim up to 35% of premiums while small nonprofits can claim up to 25%. Both businesses and nonprofits must cover at least half the employee's cost to be eligible.

The provision looks more likely to keep small employers from dropping health insurance benefits compared to promoting new employers to newly offer coverage. Nevertheless, any good news for small businesses from this legislation should be celebrated.

More Modulating

2010-05-13T07:24:00.001-05:00

Still in a somewhat in flux situation with minor health problems and significant home computer problems but hope to be back to posting by the middle of next week.

The Oil Slick and Middle TN Floods

2010-05-03T12:03:00.003-05:00

NOTE: I hope to be making substantiative accounting posts in the near future--perhaps as soon as later this week.

Much of western and middle Tennessee was deluged with 4 to 15 inches of rain this weekend and even though it previously been a fairly dry spring, flooding is everywhere--especially in the southern two-thirds of this area which includes Memphis and Nashville. Nashville TV caught the horror of a semi-driver being pulled to safety by a boat Saturday and yesterday may have been worse. Clarksville has also been affected--3 of 4 bridges over the Red River (our secondary river) have been overtopped and only I-24 allows crossing at faster than a snail's pace. Additionally, APSU classes were cancelled; as best as I can remember the first time in my nearly 30 years of teaching that classes were cancelled during finals.

All this said, an even greater natural tragedy is playing out in the Gulf of Mexico, where a oil rig exploded and spewed millions of barrels of oil into the Gulf, with doubtlessly massive negative impact on the fishing and tourism industry. As one who favors offshore drilling, I can only find small fault with the Obama administration here (perhaps too willing to lay all the blame at the feet of BP, when unfortunate weather conditions (strong southernly winds) clearly contributed to the problem. I have no idea how to rate the Coast Guard's performance). The slick brings up an example of the tough choices ahead for a country not used to being forced to make them--protect the environment and risk even higher unemployment as well as possibly $5-6 a gallon gasoline or continue and probably expand offshore drilling at the now very real risk of periodic crises such as the present oil slick.