“Wouldn’t you know IRS extended filing season an extra day the year I retire.”
Nameless but real CPA
On April 17, what was supposed to be the final day for Americans to file 2017 tax returns, Internal Revenue Service (IRS) hardware issues resulted in the outage of several key online systems. The timing couldn’t have been worse. The website crash forced the IRS to delay the tax deadline by one day. It also served as a warning sign for those of us advocating for the agency’s modernization. And don’t tell that CPA that he actually got an extra three in his last busy season. Gravy, as it were.
The day after the technology collapse, the Taxpayer First Act — described as the most transformative revisions to the IRS in 20 years — won unanimous passage in the U.S. House of Representatives. The package of nine bills is intended to redesign the IRS to emphasize customer service, new taxpayer appeal rights, improved responsiveness to victims of identity theft and modernization of technology.
“I don’t need to worry about identity theft because no one wants to be me.”
American comedian Jay London is funny, but identity theft isn’t. Unfortunately, cybercriminals know that targeting tax professionals is more effective than going after individual taxpayers; after all, tax professionals keep records on hundreds, if not thousands of individuals. This means any firm could be a target this tax season.
The IRS receives three to five data theft reports a week from tax practitioners. And, as IRS Commissioner John Koskinen said last year, “These (cybercriminals) are well-funded, knowledgeable and creative. It’s going to take all of us working together to combat these identity thieves. But doing nothing or making a minimal effort is no longer an option. Anyone who handles taxpayer information has a legal responsibility to protect it.”
While this may not be the time of year to do a full assessment of data security and technology integrity, there are steps CPA firms should take now to keep their clients’ data safe:
Most people probably don't even know what toothpaste they buy; they just recognize the box on the shelf.
The recently enacted P.L. 115-97, known as the Tax Cuts and Jobs Act, will have a significant effect on tax planning for clients, but many CPAs are also investigating what it will mean to their own firms. Best to listen to the advice of American Pulitzer prize-winning reporter and best-selling author Charles Duhigg on the process; make sure you know what’s in the tax planning “box.”
Humorist Dave Barry can be quite silly, but it’s not so funny when faced with a government shutdown like the one that took place October 1-17, 2013. That was the last one before the shutdown that took place Friday at midnight. In 2013, government operations resumed after a continuing resolution, or CR, was signed into law. And sometimes, well, we just “need that paper.”
Since accountants like to talk numbers, the 2013 16-day shutdown was the third-longest government shutdown in U.S. history. It trails behind an 18-day shutdown in 1978 and a 21-day shutdown 1995-96.
Monday, Congress voted to approve a temporary funding bill – the fourth since September – effectively reopening the government. But it’s a stopgap measure. And it’s possible we’ll see another shutdown on February 8. This is a critical time for CPAs who’ll be in the midst of filing season.
“Lobbyists are in many cases expert technicians and capable of explaining complex and difficult subjects in a clear, understandable fashion.” – John F. Kennedy
I once told a new acquaintance that I was a lobbyist, and he looked at me like I was the devil. Really. So, I greatly appreciate President Kennedy’s complement as generic as it might be. And in the case of tax reform, I wish it might be true. Frankly, finding anyone who knows the answers would make me happy. What am I talking about?
As you might have followed in the news, a comprehensive tax reform bill has moved a few steps closer to the president’s desk. It’s possible the bill will be signed before Christmas.
But the president’s signature is not the end of the story.
As we saw in 1986, the signing of the tax reform bill will set off a regulatory and legislative chain of events that will take years to complete.
After signing, the Joint Committee on Taxation will likely issue a “committee report,” or general explanations of the final bill. This will offer insight into how the new bill will affect revenue.
The information encoded in your DNA determines your unique biological characteristics, such as sex, eye color, age and Social Security number. - Dave Barry
The fight against identity (ID) theft is starting to bear fruit: The number of taxpayers who reported that they were victims of identity theft to the IRS dropped in 2016. This means 376,000 fewer taxpayers reported ID theft, a drop of 46%. Also, the IRS stopped 883,000 tax returns with confirmed identity theft links from getting through the system in 2016. That helped lead to a 37% drop in stolen returns that year.
The year is halfway through, but it doesn’t feel like we’re halfway to tax reform. Don’t get me wrong – tax reform might still happen. But as one Hill staffer said to me, “Health care is sucking the oxygen out of Washington.”
I’ve talked about the connections between ACA repeal-and-replace and tax reform several times on the video updates found on the Tax Reform Resource Center. In a nutshell, repeal of the ACA-related taxes, such as the Net Investment Income Tax (NIIT), before tax reform is undertaken, would make the tax reform baseline score less expensive.
Be sure you put your feet in the right place, then stand firm.
On Inauguration Day, President Trump followed through on his campaign position regarding the Affordable Care Act (“ACA”) and issued an Executive Order (“EO”) with the stated intent of minimizing the economic burden of the Patient Protection and Affordable Care Act (ACA) pending repeal. Sec. 2 of the EO Addresses removing certain burdens from both the government and taxpayers surrounding compliance with the ACA.
"Today only happens once in a lifetime. Make the most of it."
-Michael Ray, Country Music Singer
It’s hard to believe that it’s been seven months since I blogged about tax reform; I guess I was distracted by IRS service issues. But here we are again and it looks like the stars are aligning for a once-in-a-lifetime opportunity for tax reform. Or in my case, a twice-in-a-lifetime opportunity. I was around in 1986 for that monumental tax act and 15,000 changes later, here we are again. Our legislative process is part of the price we pay for democracy and that isn’t all bad.
(Chess and the legislative process have a lot in common, hence the reference to Knight to H3, the dangerous but noble move Ron Weasley makes to achieve checkmate in the movie, Harry Potter and the Sorcerer’s Stone.)
Magic, however, is not one of the optional responses to the test I’ve given in my tax reform blogs: “What will be the greatest driver of tax reform?”
Followers of my blogs know that I periodically write about tax reform, but it’s been a while. So, I’ve decided to dust off this quiz – here we go:
What will be the greatest driver of tax reform?
Congressional leadership changes?
Good tax policy?
I know you’re thinking: “Ed, are you forgetting that it’s a presidential election year and you recently predicted that tax reform won’t happen before 2018? Does it really matter?”
Well, it does. (And there may be more than one correct answer to my quiz.) Our profession must remain vigilant on what is being discussed now to safeguard businesses (including our own) and taxpayers later on down the line.
In its current iteration, tax reform has been top of mind on Capitol Hill for about five years. Hearings, task forces, discussion drafts and bills. Lots of conversations. It’s part of the normal vetting process and quite important. It’s how we separate the wheat from the chaff and arrive at much better legislative solutions; a process that continues today even if we “know not” the result.
Baseball is ninety percent mental and the other half is physical.
Spring time. The first busy season is done – that’s when CPAs can catch their breath, relax a little, maybe even catch a baseball game. Speaking of baseball, CPAs are in a league of their own, no question about it, and our Tax Section helps get you there. Baseball also brings me back to my childhood when I was a huge Washington Senators baseball fan. But the future for the Senators was never bright; thoughts of the playoffs, let alone the World Series, were out of the question. But now with the Nationals in town, the future is much brighter.
I’m hoping that’s the case with the IRS as well. Unlike Yogi Berra’s concept of accounting, the numbers have just got to add up for the IRS and, well, the IRS has dropped the ball in service. We all know that, including the IRS. With two strikes against them in the realm of public opinion, the IRS has unveiled its Future State Initiative. You may know from reading my recent blog on IRS service levels that I thought the signs were starting to look good in terms of possibly starting to move the IRS service needle back in the right direction.
The way to gain a good reputation is to endeavor to be what you desire to appear.
When I started college at the University of Maryland, I went in as a pre-med major, intending to be a pediatrician. I wanted something meaningful, and I wanted to make a living, but all the sciences did me in. Luckily for me, my sister had just married a CPA and I spoke to him about becoming an accounting major. The rest is history. I thought, “Maybe it’s not the most glamorous job in the world,” but I had a very positive impression of CPAs and my brother-in-law reinforced that positive impression when I spoke to him.
Fast forward to my role at the AICPA, where a key mission is to position CPAs as the premier providers of tax services. This is not just about appearances – it’s about realities. It is why the AICPA Tax Section is the home for CPA tax professionals seeking the edge they need to achieve success – premier status, if you will – through the tax practice resources and the ethical guidance we provide. We believe “premier’ is defined by the high quality services and uncommon ethical conduct CPAs provide; and the AICPA has to do its part in helping CPAs achieve the reality.
But the appearances part is important too. It’s critical. I know that CPAs are the premier tax service providers, but I want the rest of the world to know it too. And so for a number of years, the AICPA has supported a public-facing communications campaign to position CPAs as the premier service provider. Two years ago, that campaign morphed into a social media push to engage consumers to tell their #CPAPOWERED life moment stories of financial success or goals met thanks to their CPA. Last year, the #CPAPOWERED campaign focused on establishing CPAs as essential to small business success and a strong economy. The campaign helped business owners and entrepreneurs understand how much the advice of a CPA can help them start, grow and thrive.
Part of that campaign showcased CPA expertise and tips through the “CPA Secrets to a Better Business” video series. This year, the push when the consuming public has taxes on its mind began on March 4 and will run during busy season. We will again be using the Tax Tip video series on YouTube and Facebook.
Honest disagreement is often a good sign of progress.
Abysmal service levels; I hear you, I really do. It’s been a long time since I’ve been in practice but those busy season scars are still with me. I half joke but the memories don’t go away completely.
So, another busy season and the prospects for easily – wait, reasonably – representing your clients with the IRS appear to be no better than they were last year, when I blogged several times about service issues. In May, for example, you may have read about the AICPA governing Council resolution directing the Institute to intercede on a long-term solution to the service crisis. We started those conversations but, frankly, the environment in Washington got worse. Hard to believe, but it did. In October, House Oversight and Government Reform Committee Chair Jason Chaffetz (R-UT) joined 18 members of the committee in introducing an impeachment resolution against IRS Commissioner John Koskinen. The resolution is pending before the House Judiciary Committee.
What has been will be again . . . There is nothing new under the sun."
It seems like writing about expiring provisions is a regular rite of passage and frankly, it doesn't feel like the religious experience alluded to in Ecclesiastes. The last time I spoke with you about tax extenders (Nov. 28, 2014), I asked: What’s the million dollar topic on members’ minds these days? The choices were the following:
Imagination is the only weapon in the war against reality. ― Lewis Carroll
It started like most things we do: AICPA members needed it done. One after the other, after the other, and on and on, we heard from members who were tired of receiving complicated K-1s on October 13, 14 or even 15. “Please help us” they asked, so we turned to our Tax Executive Committee and said: “what makes sense?” And so, a multi-year, imaginative effort to craft a solution ended in a “way station” of success on July 31 when President Obama signed into law the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (H.R. 3236).
The law provides for a more logical flow of a broad array of returns. The main idea was to have flow-through returns completed before the returns in which the information is reported – Forms 1040 and 1120; give folks enough time to breathe and digest the flow-through information. And so calendar-year partnerships are due March 15 and calendar year C corporations are due April 15. Partnership returns are due a month earlier than they had been, but six-month extensions are now available. Other fixes were made, too, to Forms 990, 1041 and 5500. Also, the due date for FinCEN Form 114 (FBAR) moves from June 30 to April 15, but for the first time, taxpayers will be allowed a six-month extension.
Words have no power to impress the mind without the exquisite horror of their reality.
—Edgar Allan Poe
Courtesy disconnect. You may have heard about it. The telephone hold times during this past filing season were so long that the IRS hung up on callers when the hold time reached two hours. Callers were warned they were about to be dropped — hence the courtesy disconnect.
We heard from so many members about IRS service issues that we conducted a survey of all AICPA members to find out what exactly was going on correctly — and to give everyone an opportunity to be heard. The survey, conducted right after busy season, included a question about courtesy disconnects. Ten percent of respondents were courteously disconnected once; 12 percent twice; and 17 percent disconnected three or more times. Give our members credit, though. Thirty-nine percent indicated they were too busy to hold on for two hours so they courteously disconnected themselves.
It is no secret that IRS service during this past tax season plunged to a level that I can only describe as unacceptable. The anecdotes from members keep coming in, and from what we hear, the predicted 53-minute average wait time to reach someone on the IRS Practitioner Priority Hotline is not so much an average as it is wishful thinking. That prediction came from IRS Commissioner John Koskinen, who said in November that the IRS will try “to do as well as we can. As well as we can is still going to be miserable.”
Taxpayers trying to get through to a representative are not faring much better as discussed in recent news reports and shown in the chart below. In its annual report to Congress, the National Taxpayer Advocate deemed this to be the most serious problem facing taxpayers.
Are we there yet? Are we there yet? Are we there yet? Are we there yet?
~ One of my grandsons
What’s the million dollar topic on members’ minds these days? It’s always a multiple choice with me so here you go:
1. The IRS
2. The congressional lame duck session
4. Starting busy season
5. Government appropriations
6. Affordable Care Act compliance
7. The Keystone Pipeline
8. Immigration reform
9. Bipartisan cooperation in Washington
10. All of the above
(Ed, why is “starting busy season” on your list? When you were in practice, did you look forward to starting busy season? And isn’t bipartisan cooperation in Washington an oxymoron? What were you thinking?)
OK, fair enough, maybe not starting busy season, but busy season is a key to a successful practice year, and getting through it with fewer gray hairs wouldn’t hurt. (By the way, take a peek at our recent Tax Power Hour (for Tax Section members) for some tips.)
I wish it were bipartisan cooperation, but the obvious answer is “extenders.” We’re hearing from lots of members and rightfully so. Over 50 provisions expired last December. Our tax advocacy team has been talking about those provisions on Capitol Hill for over a year. And we recently sent in a letter about them. IRS Commissioner Koskinen even asked for a copy of the letter to tout with members of Congress because of the IRS’ interest in getting off to a smooth and early start to filing season. Truth is, energy and immigration policy aren’t my thing but they really are intersecting with tax policy on Capitol Hill this year. So what's the scoop?
The talk about quick passage of extenders is being replaced by congressional interest in smoothing the way for the Keystone Pipeline; indeed, legislation has passed in the House and Senate that the President has indicated would be vetoed (and they do not have enough votes to override the veto). And the President has acted on immigration issues through executive order; the Republicans have said such unilateral action could result in legal action to stop it. And if that weren’t enough, there’s other legislation, such as the Terrorism Risk Insurance Act, that requires congressional attention; and even talk about letting the continuing resolution, the temporary government funding mechanism, expire on Dec. 11. It may not be a likely result but even a remote possibility of a government shutdown leading up to tax busy season is not good!
There has also been quite a bit of talk on dealing with extenders, which is good news. Piecemeal or blanket extension? One year or two? The House has been interested in the permanent extension of some provisions and a temporary extension of the remaining provisions, and the Senate leans “blanket.” And lots of groups are posturing for something to happen - one broad coalition of business groups has urged Congress to act right away lest uncertainty and instability be injected into the marketplace. Even outgoing Ways and Means Chairman Dave Camp has said he thought the Democrats were acting in good faith.
But some would like to see provisions wither away on the vine, for example, retroactive extension of the decades old wind production tax credit has garnered a long and vocal list of opponents. And the President recently warned he would veto a congressional deal in the works, contending that it benefits corporations more than families.
However, there is still hope and I’m a glass-half-full type of guy so let me go out on a limb and give you my predictions (OK, maybe they’re wishes):
Congress will enact a two-year extension of the 2013 extenders - one year retroactively - during the lame duck session.
Congress will also pass another continuing resolution to fund government though busy season.
IRS will expeditiously finish the forms and complete programming and get things off to a smooth start.
The President and Congress will quietly work towards a bipartisan solution to immigration, energy issues and other items that need attention.
And a giant duck will land on the end of the limb I just went out on . . . is that a crack, I hear? (Ed, that wasn't just your grandson asking if “we're there yet;” it was all 400,000 of the AICPA’s members.)
Edward S. Karl, CPA, Vice President of Taxation, American Institute of CPAs
"Intaxication: Euphoria at getting a refund from the IRS, which lasts until you realize it was your money to start with." Unknown, from a Washington Post word contest
When is a CPA practice not "practice before the Internal Revenue Service?" And if it is not practice before the IRS, does that mean it’s okay to use contingent fees in a client arrangement?
Why do I write about this topic now? This past July, the U.S. District Court for the District of Columbia issued an opinion (Ridgely v. Lew) that takes a significant strike at IRS’s ability to regulate contingent fee arrangements.
Gerald Ridgely is a CPA who practices with Ryan LLC, a global tax services company, but not a registered CPA firm. Ridgely sued the IRS, arguing that the Service exceeded its authority under Circular 230 in regulating the preparation and filing of ordinary refund claims, which practitioners file after a taxpayer has filed his original tax return but before the IRS has initiated an audit of the return. Ridgely contended that the inability to charge a contingent fee for a refund claim cost him clients and significant revenue. Under a contingent fee arrangement, the client only pays the fee (or a percentage of the refund) if the claim is successful.
old adage that “there’s nothing new under the sun” and so it is inside the
Beltway. As you are well aware, the federal government
suspended most of its operations on Oct. 1 after Congress failed to pass a
bill to extend funding to mid-November, the first such shutdown in 17 years. Strong
political discourse is alive and well in America and it is part of the price we
pay for democracy. It was that way in
1996 when a shutdown lasted three weeks. Hopefully a compromise can be reached quicker
this time around.
On the tax front, with more than 85,000 Internal Revenue Service workers now
furloughed until Congress reauthorizes spending, many non-essential IRS
functions have shut down, including all taxpayer services, as well as
examinations. The closure of taxpayer and practitioner hotlines is particularly
challenging for those individuals who must file a Form 1040 by Oct. 15 and need
to contact the IRS. Nevertheless, no filing deadlines are postponed and returns
must be filed. We
have urged the IRS to consider the substantial burden imposed on taxpayers (and
practitioners) by the inability to communicate with and obtain information from
often ask me, “Ed, when do you think we’ll finally see tax reform?”
“Not before 2014,” I respond with assurance.
“How can you be so sure, Ed?” they say.
ball never lies!
started getting a bit nervous about sounding so confident. After a little digging, I found out my crystal
ball had once predicted that the Titanic was unsinkable, yet it went down on
April 15, 1912. How’s that for foreshadowing?! That forced me to do some soul
searching and thinking.
to November 2011. I was sitting next to Pat Thompson, who chaired the AICPA Tax
Executive Committee. We were listening
to Don Longano, former House Ways and Means Committee Chief Counsel and
Washington tax insider, share his views on the prospects for tax legislation at
the National Tax Conference.
hard to believe that I’m coming up on my 30-year anniversary at the AICPA. Before that, I spent eight years in public
practice – six with a local firm and two with an international one. Truth is
those 30 years have not dimmed the memories of the challenge of filing
season. I joke about those memories but
I also admit about how important it is for me to “feel the pain.”
many of our members are in public practice and have to “live the pain.” That is one of the reasons why I am glad that
my two directors have experienced many, many filing seasons - one of them ran
her own practice for 17 years – as it motivates the Tax Team even more to
lessen our members’ pain.
OK, raise your hand if you have that Circular 230 legend at the bottom of all your emails. Great – now keep your hand up if you know why. Not to worry – most of us are in the same boat. So why the question now? Here’s the story . . .
Circular 230 isn’t new - its roots go back to the Civil War. The post-Civil War Congress enacted legislation that gave citizens the authority to make claims with the Treasury Department for the value of horses and other property lost during the war. It soon became evident that more claims had been submitted than horses lost. On July 7, 1884, President Chester Arthur signed what became known as the Horse Act, giving Treasury the authority to regulate the admission of representatives of claimants before them and to take related disciplinary action. Eventually, the Horse Act led to the system we have today in which licensed CPAs are automatically admitted to represent taxpayers to the IRS with full practice rights.
Following up on those calls for solutions to our nation’s financial problems, Accounting Today reported that the AICPA’s board of directors recently voted to adopt a resolution calling on lawmakers to do more to ensure the long-term fiscal health of the United States by better controlling the growing national debt. One aspect of this resolution involves the AICPA supporting two non-partisan efforts, the Campaign to Fix the Debt and the Comeback America Initiative, both of which align with the AICPA’s goals of putting America on a better path toward fiscal responsibility.
As AccountingWEB notes, the resolution will also be shared with state CPA societies as the AICPA continues to seek ways to advocate for reduced complexity for American businesses and individuals. Stay tuned.
Last year, I wrote a blog about the congressional “super committee” created by the Budget Control Act of 2011 to deal with government’s immense debt and the deep deficit hole in which we find ourselves. The super committee of 12 members of Congress was unable to reach consensus on specific ways to wrestle with our unruly fiscal problems. That means, come this January, Washington will face $1.2 trillion in automatic spending cuts (known as sequestration).
What else is staring at us as we head towards the winter solstice? Not too much - there's the 2011 extenders including the AMT patch, 2012 extenders, the 2% payroll tax cut, the debt ceiling limit, expiration of the Bush tax cuts, and oh, the grim reaper is chasing the estate tax yet again. Did I also mention that we have a very contentious presidential election leading up to a lame duck session of Congress? Federal Reserve Chairman Ben Bernanke calls it a “fiscal cliff.” I'm exhausted just thinking about it!
Every year, politicians, economists, tax practitioners and others talk about making changes to our federal and state tax systems. Some of the proposed changes are more fundamental – the adoption of a consumption tax, for example. Other proposals, on the other hand, call for varying degrees of modification to the existing system, such as adding or expanding tax incentives to encourage savings, modernizing the international tax rules, or making procedural changes to improve compliance.
In a presidential election year, and at a time when our country faces unprecedented levels of debt and extraordinary amounts of governmental-operating deficits, taxes will continue to be one of the most pressing issues for public discourse. Have you heard any of the candidates mention the “T” word lately? We all know, however, that talking about taxes in this environment takes a lot of political courage.
I’m a procrastinator by nature. I can’t help it. I wait until the last possible second to do things - even important things that I know I need to do, like file my taxes. Many of you reading this may be in the same boat as me, staring at the calendar and wondering how it’s possible you still haven’t gotten around to filing yet.
I hear you, and I also hear the clock ticking as it counts down to the April 17 deadline.
As luck would have it the AICPA has helpfully compiled the 10 Top Last Minute Tax Tips to help get us through the process as painlessly as possible. In fact, one of the most helpful last minute tax tips for me was the news that I can have my CPA e-file for me. So this year, even though I waited until the last minute I won’t have to sprint up the steps of the Post Office just to make the deadline, as I have in years past.
I often get phone calls from members who are troubled by a professional ethics issue. “Ed, I have a conflict with a client; I don’t trust him.” Or, “I just engaged with a new client and I suspect the old accountant of doing something wrong; should I turn her in?” The scenarios change but in the end, they always ask: “What should I do?” And I always tell them: “I can’t tell you what to do!” Really, it comes down to a matter of ethics and who am I to tell someone how to behave?
Over the years, while teaching classes on subjects like the AICPA’s enforceable tax ethics, the Statements on Standards for Tax Services, or the Internal Revenue Services’ Circular 230, I often ask the participants to define ethics. “Guided by a code of conduct,” “acting with integrity,” “having a moral code,” “moral principles that govern a person’s behavior,” or “living your life with high values” are examples of what I’ve heard. The definition that resonates best with me is “doing the right thing.”
Well, it seems as if deficit-reduction watching has nudged baseball out as America’s favorite pastime!! With a full count on the debt ceiling, Congress came together on August 2 to strike out the looming debt ceiling cap and hit a $1 trillion in spending cuts. At the same time, lawmakers also agreed to come to grips with the monumental deficit. The agreement created the “Dirty Dozen,” a bipartisan Joint Congressional Committee that is charged with moving forward additional deficit-reduction ideas of at least $1.5 trillion by November 23, 2011. Automatic, across-the-board spending cuts will ensue if Congress fails to come up with a specific plan by the end of December.
For years, AICPA members have approached me at conferences and asked, “Ed, why doesn’t the AICPA support efforts to regulate paid income tax preparers?” Or, “Why can’t the IRS discipline 'unenrolled' preparers under Circular 230 (the rules governing practice before the IRS)?”