Tax Feed

Form 1040 income tax return

The AICPA provides tax practice tools to help members elevate their practices and maintain the highest ethical standards. The AICPA also advocates sound tax policy and effective tax administration.

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

Potential State Tax Law Changes on the Horizon

In and out of focusAs we get ready to put away our snow shovels, gloves and winter coats, and take out the sandals and sunscreen (yes – we probably should be using it all year), Congress and many state legislatures are considering some important tax changes. The AICPA and state societies are closely monitoring these issues and ensuring that the profession’s voice is heard:

  • State Sales Tax on Professional (Accounting) Services

With states searching to either expand their revenue base or reduce reliance on income taxes, several states are considering proposals to expand their sales tax to cover professional services, such as those provided by CPA firms. So far this year, 11 states (California, Connecticut, Hawaii, Indiana, Maine, Maryland, Mississippi, Missouri, Ohio, South Carolina, and Virginia) are considering the issue. Recently, Pennsylvania Gov. Tom Wolf (D) proposed a sales tax expansion that would include accounting services, but professional services provided to a business would be exempt.  The AICPA continues to work with state CPA societies and our profession partners to try to stop these proposals from becoming law.

Continue reading "Potential State Tax Law Changes on the Horizon" »

Due Diligence Reminders for Tax Extensions

4868 formOur hours get longer as we approach the downhill stretch of filing season, and it gets more tempting (if not mandatory) to file an extension for many clients. The proper preparation of an extension involves more than the entering of numbers on the extension form. And, the demands of filing season sometimes take over and quality control procedures and professional standards are overlooked in an effort to get everything filed.

This year will be especially complicated with Affordable Care Act items, a late start with extenders, many late documents from third parties and a culture that expects convenience and increasingly instant results. But the AICPA Code of Conduct, Circular 230, AICPA Statements on Standards for Tax Services (SSTSs) and the Internal Revenue Code (IRC) all still need to be considered in the preparation and filing of extensions for clients. The applicable standards include:

  • Circular 230 Sections 10.22, Diligence as to accuracy, and 10.36, Procedures to ensure compliance, mandate considerations to be followed in the preparation of federal returns, including extensions by practitioners.
  • AICPA Code of Professional Conduct Rules 1.100, Integrity and Objectivity, and 1.300, General Standards, provide rules for AICPA members to follow.
  • SSTSs No. 1, Tax Return Positions, and No. 2, Answers to Questions on Returns, provide more insight into due diligence in the preparation of returns. Also, SSTS No. 4, Use of Estimates, would be applicable for practitioners working with estimated amounts of income and deductions.
  • IRC section 6081(a) authorizes the Treasury to allow an extension of time to file for up to six months.

Let us first remember the extension we are filing is the taxpayer’s extension and not our extension. Therefore, the client must be informed that the amounts shown on the extension represents an estimate of their income and the figures are their responsibility. Where possible, assign staff to contact clients as soon as possible. Sufficient time is needed for due diligence and other considerations in order to properly and accurately file an extension.

Further, we are not allowed to file extensions just because clients expect them; we need their explicit permission. Form 8878, IRS e-file Signature Authorization for Form 4868 or Form 2350,is available for this purpose.

In order to stress this point with clients, Gerard Schreiber’s CPA firm communicates in writing with clients after filing March 15 returns and requests written authorization to file an extension of time on their behalf. The letter will also indicate:

  • Whether the taxpayer authorizes the firm to file an extension on their behalf;
  • All Forms W-2 with tax withheld should be returned with the signed letter;
  • Estimated tax payments made should be listed in the space provided;
  • This is an extension of time to file and not to pay. Any balances due will incur penalty and interest; and
  • If estimated tax payments for the next tax year are required, they should be made.

This may seem a bit too much, but we can never be too careful with this topic. The legal landscape dictates for us to be overly cautious in both return preparation and extension preparation.

We all have seen taxpayers who call and indicate that they are “going through difficult times” or “will owe no tax” and therefore do not need to make any estimated tax payment. These same clients will then show up on October 15 with a Form 1099 or Schedule K-1 for a large amount of income and owe the IRS a significant amount of tax as a result of not making estimated tax payments or a payment on April 15. Some clients are confused or incensed at being assessed interest and penalties. Some clients blame the CPA, but this argument falls flat when the CPA did his or her due diligence.

The IRS has sometimes invalidated an extension due to the use of a bad faith estimate. SeeCrocker v. Commissioner, 92 T.C. 899 (1989) and Oliver v. Commissioner, T.C. Memo. 1997-84 for more on this subject. Besides the IRS, there has been activity in local jurisdictions where CPAs were held liable for extensions filed with bad estimates.

Just some food for thought at this late date. Good luck - we’re almost there.

Gerard Schreiber Jr., CPA, Partner, Schreiber & Schreiber CPAs in Metairie, LA. Gerard specializes in tax, accounting and consulting matters for individuals and small businesses. He serves on the AICPA Tax Practice Responsibilities Committee and has authored numerous courses and articles on various tax subjects.

Valrie Chambers, CPA, PhD, is an Associate Professor of Accounting at Stetson University in Celebration, FL. She has over a decade of public accounting experience as owner/partner-in-charge of a CPA firm in Houston that specialized in advising small business owners. Dr. Chambers has been published in numerous journals and received the Texas Society of CPAs Outstanding Accounting Educator Award for mid-sized Texas universities in 2012. She has volunteered for the AICPA and the IRS’ Volunteer Income Tax Assistance in Corpus Christi

Form 4668 image via Shutterstock

Snow White Meets the IRS and Other Fractured Fairy Tales

Fairy tale imageIf you have ever watched the television show Once Upon a Time (one of my favorites) you know that it offers some compelling twists on popular children’s stories. Peter Pan author J.M. Barrie was probably rolling in his grave when his main character, a lighthearted kid who just doesn’t want to grow up, emerged as an evil teenager, but at least a relatively happy ending followed. 

Watching the show and working for the world’s largest association of CPAs got me thinking:  what would our beloved fairy tales be like if a CPA were to write them and perhaps play a role?  Here is my best tongue-in-cheek guess. Let us know if you have others you’d like to share.

Continue reading "Snow White Meets the IRS and Other Fractured Fairy Tales" »

What Employers Assume about the ACA Can Hurt Them (and Staff)

Healthcare WordleThe Affordable Care Act is here to stay and continues to challenge CPAs with many unanswered questions and some mind boggling confusion. Every time I think I understand the ACA, rules change and interpretations contradict themselves. Despite the high frustration level, our own firms, our companies and our clients depend on us to guide them.

As a CPE discussion leader for the AICPA and others, I am continuously challenged by participants who complain about leaving class with more questions than answers on ACA. This situation is not about to resolve itself.

When the law was passed in 2010, the knee jerk reaction for many employers was: “We'll just cancel our health insurance plan and pay the penalties.” This is not a good answer. Take my own CPA firm as an example. We employ about 35 people and do not have to offer affordable health insurance since we have fewer than 50 full-time equivalent employees. Although Full-Time Equivalent Employee is defined three different ways in the ACA, our firm is definitely exempt from penalties.

Continue reading "What Employers Assume about the ACA Can Hurt Them (and Staff) " »

Rules and Resources for ACA Due Diligence

Due diligenceThe filing season is upon us and the question practitioners are asking themselves is “What due diligence steps are necessary for getting Affordable Care Act information from clients?”

The ACA provides a new challenge to practitioners in preparing 2014 returns, which will require more due diligence and effort to comply with these new rules.

The IRS, the AICPA, and others have provided many resources to practitioners on understanding the filing requirements of the ACA. In addition to these resources, practitioners should note the due diligence requirements under Circular 230, the AICPA Code of Professional Conduct, and the AICPA Statements on Standards for Tax Services that provide enforceable standards for AICPA members:

Continue reading "Rules and Resources for ACA Due Diligence" »

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