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Why is the AICPA Filing a Lawsuit Against Lame IRS Preparer Program?

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We all get gold stars in the IRS’s new “Annual Filing Season Program.” Woo hoo.

Time to wade into the IRS preparer regulation fray again.

The IRS is plowing forward with a voluntary program for tax preparers that falls well short of “regulation.” And for some reason, the AICPA has filed a lawsuit against the IRS.

My understanding of the program is that if a preparer sits through 18 hours of continuing education and passes some sort of test administered by a CPE provider, they get a gold star and an “attaboy” from the IRS.

As my 6-year-old son would say: “Seriously? Lame!”

CPAs, EAs and attorneys get our gold stars by virtue of our licensure.

Apparently all of us: CPAs, EAs and attorneys, along with all of the gold-star unlicensed preparers who get a lame certificate of participation, will be listed in a database on the IRS website.

Counting the days til we all get our gold stars and online listing from the IRS!

Counting the days til we all get our gold stars and online listing from the IRS!

Yawn.

Why on earth would AICPA file a lawsuit about a voluntary program that doesn’t even involve granting a designation or special privileges?????

As long as the database explains what it means to be an EA, CPA, attorney, or “gold-star unlicensed preparer,” I don’t see what the big deal is.

With the RTRP program (voluntary or involuntary) I was worried that EAs would get lost in the shuffle.

But with this program, how are the unlicensed people who achieve a gold star going to market themselves? Again, they get no designation and no special privileges.

I really am not too worried about losing potential customers to some unlicensed guy who sat through CPE and now has a worthless piece of paper and a warm and fuzzy feeling about himself.

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The gold star and online listing is sure to ignite the self-esteem of all of us in the preparer community.

What’s he going to say about himself? “Look at me, I satisfied the IRS Annual Filing Season Program! Look at my certificate of completion and (almost-certain-to-be) confusing listing on the IRS website!”

I bet all of us in the preparer world will start getting spam from places offering to give us framed certificates, just like we get from that PTIN place that says they’ll sell us a framed PTIN “certificate.” More e-mails for me to delete without reading.

Anyway….

AICPA’s lawsuit is just as ridiculous as the IRS program. As I’ve written before, CPAs have the least to lose in any sort of preparer regulation system.

I’m an EA, as unknown of a designation as there is. We are Liechtenstein to the CPA’s United States. But even I am not worried about this lame-o IRS program.

So why is AICPA worried about it?

“Gold star”image courtesy of Boians Cho Joo Young / freedigitalphotos.net

“Calendar” and “Yes You Can” images courtesy of Stuart Miles / freedigitalphotos.net

Life After DOMA: A History of Marriage in the Tax Code

One of my special research projects has been to research the history of marriage in the U.S. Tax Code.

I started this project nearly 3 years ago. Around this time, my practice became heavily involved in helping couples in same-gender marriages navigate the tax complexities they faced when the Defense of Marriage Act existed.

A common theme in the media and among clients was (and still is) that marriage will “always” result in bigger refunds at tax time. This simply is not true.

I knew about the so-called “marriage penalty” and how, historically, approximately 50% of married couples will see their tax liability increase as a result of getting married.

But I didn’t know why there was a marriage penalty. I don’t like not knowing why.

So I set out to find out.

Three years later, I’m still researching but have created a draft manuscript and have more than 4,000 words written on a lengthy essay about the history of marriage in the tax code.

Over the months to come — okay, probably the years to come — I’ll be sharing parts of this manuscript. It’s an ongoing project and I don’t know yet how often I’ll be posting parts of it here. I also don’t know when it will be finished or what the finished product will look like.

But I think it’s fascinating stuff, so I have to share it. Stay tuned.

138 Years Ago Today: Custer’s Last Stand

I’ve been fascinated by the Battle of the Little Big Horn (aka “Custer’s Last Stand”) since the summer between 4th and 5th grades. And no, I’m not going to try to draw some sort of ham-fisted connection between the battle and taxes. This post is purely personal.

I remember that summer, when I stumbled across an old book in my parent’s musty basement. The book was a fictional account of the “only survivor” of the battle … a cavalry horse named Comanche. That book was the spark of a lifelong obsession with the battle.

I would soon learn that this book was total, ridiculous, fiction, devoid from almost any reality. But it drew me in.

I’m not sure what the draw is. Maybe it’s the fact that no one really knows how the battle played out. (To clarify: no white man knows how the battle played out.)

I’ve read countless books on the subject. My bookshelves are lined with dozens of books about the battle. Dozens more reside in boxes in my garage. I’ve visited the battlefield in Montana at least five times (I’ve honestly lost track).

I have my own pet theory about what happened, but I won’t bore you with it here. Not today anyway. At heart, it comes down to Custer underestimating the size of the Native American village he was attacking, and spreading his forces way too thin and out of effective range for contact or help. (There WERE soldiers who survived the battle. Custer divided his force into 4 parts. The other 3 parts survived; his did not.)

Further Reading

There are many books out there about Little Big Horn. To this day, books are still being written.

But I would recommend staying away from the modern-day books with their cheesy “shocking revelations” that are not really all that shocking. 

Here’s a good starting point.

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My battered and tattered copy of Son of the Morning Star

Son of the Morning Star by Evan S. Connell.

Period.

This book, written in 1984, is the single greatest resource about the battle. Connell relates stories and anecdotes from both the U.S. and Native American side.

I have read this book repeatedly. The picture you see is my original copy my parents bought me almost 25 years ago. I’ve read it so many times the pages are falling out. I learn something new each and every time I read it. If you’re going to read one book about the battle, this is the one.

Solo Practitioner Blues: Value Pricing Revisted (I Was Wrong)

Two weeks ago, I wrote a blog post about value pricing. That post was, shall we say … full of “attitude” on my part about the concept of value pricing.

The attitude was real and by design.

I had questions.

I wanted answers.

I got answers.

And I was wrong in that post

Wrong in two ways.

ONE: value pricing is not about jacking up prices on unsuspecting rubes. Yes, different clients may be charged different fees, but it’s not about nefariously taking advantage of people. It’s about turning the pricing process outward and looking at the value of what you’re doing for the client rather than just looking at hours punched on the clock.

In my mind, as I read blog post after blog post after blog post about value pricing, I envisioned a bunch of men smoking cigars and drinking scotch in the board room of an accounting firm, slapping each other on the back about jacking up fees.

(Yes, yes … for a grown man I have a vivid imagination.)

My imagination was off the rails on this one. Value pricing is a legitimate pricing method, and the firms that use it take it seriously. They deserve better than the attitude I threw out in my prior post.

TWO: I’m not a “heretic” about value pricing. I actually agree with, and in some cases already use, the concepts of value pricing in my own firm.

I still have questions, such as how one determines that one client gets charged, say, $500 and another gets charged, say, $400 for seemingly the same work. I’m also working through how a solo operator who deals mainly with average folks who need tax returns prepared or with main-street small businesses who need basic bookkeeping services, can implement this pricing structure.

But those are questions, not criticisms. From a basic conceptual standpoint, my original post was grossly unfair to those who practice value pricing.

I write about practice management topics like this because, as a solo operator, setting fees is by far the hardest thing I do. It is far, far harder than keeping up with changes in the law or trying to get all the work done.

More to come, but I wanted to write this post now to admit that my last post on this topic was unfair.

(Thanks to Ron Baker, the father of value pricing for accountants, for providing me with his latest book, “Implementing Value Pricing” and for his patience with my questions in several e-mail exchanges.)

Yet Another Post About Regulation of Tax Preparers

ID-10047126I haven’t said anything about regulation of tax preparers in a long time, even though the IRS is now proposing a new, voluntary system for regulation of tax preparers, because my opposition to new designations has always been consistent.

But there’ve been some posts about this on other tax blogs lately, and the National Association of Enrolled Agents has written a letter in opposition to the proposed voluntary system.

So down that road I go again.

Preparer regulation is a bad idea. To recap my feelings:

  1. Enrolled Agents would be pushed even further to the fringes of the tax world by any new IRS-mandated or IRS-blessed designation.
  2. The IRS doesn’t need more things on its plate. It can’t handle the things it currently has on its plate. How would they successfully oversee some new designation?
  3. There is no compelling need for a new designation. There was no clamoring by the public or by tax pros for an RTRP designation, and there won’t be a clamor for whatever this voluntary designation would be called. There are some tax pros who “want” a designation because they think it would give the unlicensed more credibility. But that’s a want, not a “need.”

NAEA, bizarrely, supported the mandatory RTRP program but is opposed to a voluntary program. NAEA’s letter to the IRS tries (with mixed success, in my opinion) to explain why NAEA supports the RTRP idea but not the voluntary idea.

I’ve taken NAEA to task before over the organization’s stand on preparer regulation. But NAEA does get one thing right in their letter to the IRS: they call on the IRS to actually promote the voluntary designation that already exists — the EA designation:

(T)he agency has never tried to promote vigorously the (EA) credential and our suggestion that the agency consider this approach is not unreasonable at all….

Indeed. Promote the EA designation as the voluntary credential of choice for tax pros who aren’t currently licensed. Simple. Efficient.

Hey … I proposed that myself a few months ago.

Image courtesy of wandee007 / freedigitalphotos.net

 

IRS Clarifies New E-file Rules

(NOTE: after I wrote this, I have heard from two practitioners who have pointed out to me that until the IRS updates Publication 1345 or comes out with official guidance, they are not going to celebrate. The confirmation I got this afternoon was from the local IRS liason. These two practitioners both say they’re not going to celebrate until the IRS comes out with official confirmation. At any rate, the blog post below is relaying info from an IRS practitioner liason.)

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This IRS this afternoon confirmed to me and other practitioners who had been making the IRS’s lives miserable the last few days that: the new e-file rules apply only to electronically signed e-file authorizations. And “electronically signed” means signed by some means other than pen-to-paper.

So for most prepares, included me, the new rules don’t apply because most of us aren’t using electronic signatures.

I have to say thank you to Ann, our local IRS liason, for taking our concerns seriously and elevating those concerns and getting clarification.

No Electronic Signatures for Me!

I first heard of e-signatures back in March when I saw a link about it on Twitter. I had put it on my list of things to investigate this summer. Since I do very little face-to-face tax preparation, I thought an e-sig option might be a good addition to my practice.

Not anymore. The IRS has made my investigation into electronic signatures easy. I’m not going to pull credit reports on my clients, no matter how convenient e-signatures may be.

I’ll stick to my current methods of having the client sign with a pen and scan or mail back to me.

Questions to Ponder About New IRS E-file Requirements

UPDATE 5/22/14: The IRS has clarified the rules. Click here for more info.

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I have questions for the IRS regarding the ridiculous new e-file requirements that make me get a photo ID and run a credit report on my clients. Here they are, in no particular order:

Question One: How does this work for business and not-for-profit clients?

My largest client is a not-for-profit that is headquartered in another state. They’d like to e-file their 990, which is currently on extension. They’ll be signing the e-file authorization in their office, which is a long ways away from my office.

How does the photo ID and credit report part work for clients like this?

Am I supposed to do a credit check on the person who signs the form on behalf of the organization?

For corporate clients, am I supposed to do a credit check on the officer who signs?

What if this officer is also a individual income tax client? Do I have to run a credit check a second time when I do the personal return? Or can I just do it once and use the same credit report both times?

Question Two: If a client returns the following year, do I have to run a credit check again?

Say these stupid rules hold up. So Client A comes to me in 2015 to prepare their 2014 tax return and I pull a credit report to verify that they are who they say they are.

Client A returns to me in 2016 to prepare their 2015 tax return. All of their information is the same. The client looks the same. Do I need to pull another credit report? I’m guessing the answer is yes, but some clarification would be nice.

Question Three: Why have you said nothing about these new requirements?

The IRS e-file handbook was quietly updated a few weeks ago. Apparently the changes take place immediately. Meaning, for 2013 tax returns that are on extension.

Why has the IRS said nothing about these new requirements? The silence is bizarre.

Question Four: Does the IRS understand that people’s credit might get dinged from pulling credit reports?

My attorney pointed out that typically, a person’s credit score gets dinged every time a credit report is pulled. Has the IRS contemplated this potentially negative consequence?

Question Five: Speaking of my attorney, he said it’s probably not legal to pull credit reports anyway. Did the IRS consider this?

In many states, a person’s credit report can only be pulled to evaluate the person’s creditworthiness for a loan. My attorney is looking into what Iowa’s laws say. Is the IRS aware that the IRS may be asking accountants in many states to violate state law in order to be compliant with the new requirements?

(PS, my attorney’s exact words when I told him about these new rules were: “That’s just stupid.”)

Question Six: On a related note, is it good for tax pros to see a client’s credit score?

How does one look at a credit report while not letting one’s eye wander to the credit score? The credit score is none of my business but it seems impossible to avoid knowing what a client’s credit score is, no matter how hard I might try not to look at that part of the report.

Question Seven: How would a credit check foil an ID thief?

The photo ID part I kinda sorta get. But if a thief has a person’s name, SSN, date of birth, etc. — as a sophisticated ID thief probably does, then what would the credit report tell me that would alert me to an identity thief?

Question Eight: How many ID thieves use a tax pro?

I’m sure some ID thieves do go to tax pros. But I’m guessing most ID thieves use TurboTax or some other means to file the fraudulent return(s) without going to a tax pro. So how is are these new requirements you’re placing on me going to stop identity theft?

I Was Wrong: We SHOULD Be Outraged About the New IRS E-File Requirements

A few weeks ago, I wrote that my colleagues in the tax world were being overly dramatic about the new IRS e-file requirements. I said I thought the requirement to take a photo ID and pull a credit report on clients applied only in limited circumstances that didn’t apply to many of us.

I was wrong.

At a continuing education event on Tuesday, it was clarified that practitioners are supposed to take a photo ID from all clients, and pull a credit report if the client signs the e-file authorization “remotely,” meaning: anywhere other than right in front of the practitioner. (My interpretation had been that “remote” signature meant that the client signed the authorization digitally rather than with an old-fashioned pen. Again, I was wrong.)

Read Joe Kristan’s blog post for more details.

If these new requirements stand, it will force me to totally change the way I conduct business. I’ll have to increase fees and will undoubtedly lose clients — maybe a lot of clients.

Here’s what I wrote to the IRS liason who’s collecting comments from practitioners:

Kristy,

Joe Kristan asked me to e-mail you my comments on the new IRS e-file requirements. I’m an accountant in Indianola and will be adversely affected by these requirements.

I meet all of my clients face-to-face at the beginning, but the actual preparation and completion of the return is done away from the client. In fact, in my practice, literally 98% of my clients sign the Form 8879 “remotely.”

I send them their completed tax return and the e-file authorization either by mail or through my secure website, and they sign the authorization on their own time and either mail or scan it back to me so I can e-file the return. It seems this meets the definition of being a “remote” signature (since the signature doesn’t take place in front of my eyes) and I will need to start pulling credit reports on 98% of my clients.

If this is the case, it will increase my cost of doing business and I will likely lose many of my clients who don’t want to mess with the bureaucracy, the intrusion on my part into things that aren’t my business (via their credit report) and the additional fees that I would need to charge them due to the increased compliance burden on my end.

And if I’m supposed to implement this NOW, on the 2013 extensions I’m working on … well, I don’t even know where to begin on how to get credit reports. I truly feel paralyzed because I don’t even know where to start on complying with these ridiculous new rules.

In addition, I talked to my attorney and he’s not sure it’s even legal in Iowa to pull credit reports on people except for purposes of verifying their creditworthiness.

I would also like to tell you what my attorney said regarding these new requirements. He said, quote, “That’s just dumb.” I agree. One could insert many different adjectives and expletives in place of “dumb” to describe these requirements.

Please pass this on to the proper decision makers at the IRS.

Sincerely,
Jason T. Dinesen, LPA, EA

Is it Okay for Clients to Text a Professional Service Provider?

In my writeup about tax season, I wrote, not particularly tongue-in-cheek, about the annoyances of getting incessant text messages from clients.

Dawn Mentzer at the Insatiable Solopreneur website picked up on this part of my post and did her own blog post, titled “3 Ways Texting with Clients Can Hurt Your Business.”

Dawn’s post covers all of my concerns about texting but I wanted to add some more thoughts.

Not All Texting is Bad Texting

A lot of my clients read this blog, so I want to clarify something: I am not opposed to ALL text messages from clients.

If it’s a simple question, like a business client wanting me to remind them of how much they can put into their SEP account, that’s fine. In this case, a text may even be easier than a call or an e-mail.

If it’s something short, like wanting to know if it’s okay to call right now, or to say they’re running late to a meeting, that’s fine, too.

But there’s a line that shouldn’t be crossed.

One line is: texting with questions about how a tax return is coming.

A second line is: when you’ve received a notice from the IRS and you take a picture of the notice and text it to me and expect me to be able to decipher the notice and make it all better just from the tiny, grainy, off-kilter photo you texted.

The first one, in particular, blows my mind. My answer is always “it’s in process. I will let you know when it’s done or if I have questions.”

I can’t possibly give more detail than that in a text, so it’s a mystery to me why clients feel compelled to text “r u done w r txs yet?” over and over and over again.

The single best way to ensure timely completion of your tax return or other work I’m doing for you IS TO LEAVE ME ALONE AND LET ME WORK.

(Can you tell that I still haven’t recovered from my tax season punchiness?)

In Closing

I have found that ignoring the texts doesn’t work (or at least, it didn’t in my case). Ignoring the texts just made those clients text the same thing again later.

But the single greatest piece of advice in Dawn’s blog post: you’re in control. (With “you” being the business owner plagued by texts from clients.)

This is something I remind myself of often. This is MY business and I am in control.

I have a hard time with that. Read my posts about pricing (as in my post from Tuesday) and you’ll see I have a very hard time with the concept of me being in control.

Much more to come.

On Schedule C’s and Setting Rates

ID-100109351According to research from the National Society of Accountants, the price for a Schedule C (sole proprietorship tax return) is $205.

My fee for a Schedule C starts at $50.

There’s a lot to say on fees (like … I will no longer tolerate people complaining about my fees after I’ve seen research like what I linked to above!) and I’ll fill up future blog posts with those thoughts.

But today, I’m writing about Schedule C.

Is the average price for preparing a Schedule C really $205? Or on this survey, did some firms respond with the total price for a Schedule C plus the accompanying 1040?

Other solo practitioners I have talked to charge nowhere near $200 for a Schedule C. Most are somewhere in the $60-75 range.

I do know that a competing CPA firm in my town charges $250 for a Schedule C, but that firm is aggressive with its pricing, and they have multiple layers of staff and partners, so they really aren’t comparable to a solo operator like me.

Pricing a Schedule C is Hard

Not all Schedule Cs are created equal.

My Schedule C clients range from:

  1. Side businesses of all sorts.
  2. Consultants (generally home-based) who make a lot of money but who have very little in the way of expenses, so their Schedule C is simple.
  3. Independent contractors, such as salesmen, who are treated as a contractor but who work for one company exclusively and who have no expenses other than mileage, so again, their Schedule C is simple.
  4. A few “main street” type of businesses that have a complex Schedule C — but once a sole proprietorship grows into this stage, they usually incorporate, so I don’t have too many Schedule Cs in this category.

These things make it hard to pin down an exact fee for a Schedule C. I can’t really charge the same for someone in #1 as in #4. And the folks in #3 are not really “business owners,” they’re just poor sods who are being treated as contractors and have no choice but to file a Schedule C.

A lot of times I’ll bill people in #1 and #3 at my Schedule C-EZ price ($25 … yes, I know that’s ridiculously low).

I’ll keep the fee at $50 for #2 and #4, and usually they have other things, such as the home-office deduction and depreciation schedules, that push the fee up higher.

The point, I guess, is that when you’re a solo operator like me, it’s hard to set rates, and even harder to stick to those rates. By far the hardest thing I grapple with is the question of “what to charge.”

More to come in future blog posts.

Image courtesy of adamr / www.freedigitalphotos.net

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