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Are Other Tax Pros Screening EIC Clients?

April 19, 2013 in Editorial Commentary with 1 Comment

I’m curious to know if other tax pros are doing any kind of screening of clients and refusing to serve those who qualify for the Earned Income Credit?

And if so, how does that work?

Like I said in my post-tax-season recap, returns claiming the EIC make me extremely nervous. I know that all of the EIC returns that I prepared are legitimate. But I still lose sleep — truly — over these returns.

My life would be much easier without EIC clients. But how do you screen them out? Is it ethical to do so?

In MANY cases, I don’t even know a person qualifies for EIC until after they’ve given me their documents and I’ve started working on their return. They have entrusted me with preparing their return. What am I supposed to say? “Sorry, I discovered that you qualify for EIC, so I can’t prepare your return. Come pick up your documents and go somewhere else”?

Most of my EIC clients are hardworking people who have kids and just happen to be in the income range for qualifying for EIC. They are honest people.

Some are sole proprietors whose business income was such that they happen to qualify this year but probably won’t next year. They are honest people.

I have found that many of my EIC clients don’t even know they qualify for EIC, even if they’ve claimed it in the past. And they certainly have no concept of “gaming the system.” They are honest people.

Am I supposed to just say “sorry, find someone else to do this return”?

That’s my conundrum.

I truly freak out about EIC returns. Form 8867 and the things I’m supposed to be asking and documenting seriously scares me.

But the EIC returns I file are legitimate, and the taxpayers are honest people.

So, what are other pros doing in regards to EIC? How are you reducing the stress and risk involved with EIC claims? And if you’re screening people or flat-out refusing service to EIC clients, how do you go about this process?

Actually, I would like to start screening ALL potential new tax clients but I’m not exactly how that would work in the heat of tax season when I’m busy with dozens of other things and people call wanting me to do their taxes. How do I “screen” potential clients? But that’s another blog post for another day.

Tax Season 2013: Mostly Unpleasant, And I’m Glad It’s Over

April 17, 2013 in Editorial Commentary with 11 Comments

I’m glad tax season is over.

This was my fifth tax season on my own, and it’s the first time where I can honestly say, I didn’t have fun during the season.

It wasn’t all bad, of course. There was good along the way. But taken as a whole, tax season 2013 was mostly unpleasant.

The Good

  • I made a bunch of new connections and picked up some great new clients this year.
  • 95% of the clients who used my services in 2012 and earlier returned this year.
  • My client count grew by a net of 40% over last year.
  • My billings for tax preparation work increased by 113% over ALL of my billings last year for all types of work. In other words, if you took my 2012 gross billings for tax preparation, audit defense, bookkeeping, tax advising, business advising, etc., and doubled it (and then some), that would equal what I billed just for tax preparation work alone this tax season. That’s in about a 2-month timeframe. Which leads to….

The Bad

  • Crushing workload. I felt unprepared all tax season. The late start to the season and all the form delays played a big role. Add to that the fact that my business grew so quickly, and I was out of sorts all tax season. People who know me know that I am usually over-prepared. I don’t like feeling out of sorts and unprepared. But I fell behind immediately this season, never caught up and never really felt like I was in control of anything. I don’t tolerate that at all, so I’m already plotting ways to make sure next tax season runs better.
  • Weird techno-glitches. Whether it was my cell phone (which doubles as my business phone) glitching out for an entire week or my tax software glitching out or my computer system dying in the heat of tax season, or my toddler dunking my business tablet in the cat water, it was a bad season for technology. (The tablet survived, except that the speakers got fried.) Also, the IRS e-file system, which had been running fast most of the season, came to a screeching halt towards the end. E-file confirmations — especially for state returns — at times took almost a WEEK to come back.
  • Earned Income Credit. Every EIC claim I filed was legitimate, of course. But every single EIC claim I filed made me nervous. I truly lost sleep over returns with EIC on them, thanks to the new IRS “due diligence” requirements imposed on preparers. I’m beginning to think Robert Flach is right — don’t take on any EIC clients in the future, no matter how legitimate the EIC claim. I’m not sure I’ll do this, but it sounds really tempting.
  • Crabby people. Without getting into specifics, it sure seemed to me that many people were just plain crabby this tax season.

I’m curious to know what others thought of the season, whether tax pro or ordinary taxpayer. Am I alone in thinking this was a clunker of a season?

Why Would Any Enrolled Agent Support the RTRP Program?

March 20, 2013 in Editorial Commentary with 2 Comments

Really, I want to know. Why would any Enrolled Agent support preparer regulation?

Why would any Enrolled Agent support the creation of the RTRP designation for the previously unlicensed?

The unlicensed outnumber EAs something like 7-1, and the creation of an IRS-blessed designation that would almost certainly get more publicity that the EA designation would be bad for EAs.

It baffles me that the National Association of Enrolled Agents is so in love with the RTRP program.

In their weekly newsletter to EAs last week, NAEA bizarrely referred to the unlicensed preparers who brought suit against the IRS over the RTRP program as people who want “the right to remain incompetent.”

NAEA also kissed the government’s butt by praising the “serious and vigorous” IRS attorneys who are appealing the court ruling that struck down the RTRP program. The flowery kissing-up continued as NAEA went on to opine that the government “delivered its A-game” in the appeal.

Blech. Not only did this trigger my gag reflex, but the whole tone of what NAEA said made me angry.

Couple this with the fact that NAEA President Frank Degen recently claimed that there is “overwhelming support” among EAs for preparer regulation, and I am fed up.

This Enrolled Agent does NOT support the RTRP regime, and I can’t figure out why NAEA — or any EA — would support it.

What is the up-side for EAs?

According to research from NAEA, nearly 90% of the population has not heard of the EA designation.

NAEA should be working on ways to reach to reach that 90% and let them know who EAs are and what we do … instead of spending time kissing the government’s butt and slamming unlicensed preparers in weekly newsletters to EAs.

And instead of calling unlicensed preparers “incompetent,” NAEA should be reaching out to the unlicensed and encouraging them to use their knowledge to become EAs.

And so I ask again: why would an EA support preparer regulation, as was proposed by the IRS with the RTRP program? What’s the upside for us?

I would like to know, in detail, what NAEA thinks the upside is and how EAs will benefit.

Because I’m sure not seeing it.

Greatest Hits: Enrolled Agents, The Liechtenstein of the Tax World

March 6, 2013 in Editorial Commentary with 1 Comment

I had a draft written for a new, original post that was supposed to appear today. But the post needs refinement, and tax season is in full force right now, so I haven’t been able to finish the refining yet. So, I’m reaching into the greatest hits well for material this week.

From last summer, my editorial in which I compare CPAs to the United States and Enrolled Agents to Liechtenstein.

This article is a little dated now, because the RTRP designation has been shot down in court, but the overall point is the same — EAs are hopelessly outnumbered and overshadowed.

—–

(Originally published July 27, 2012)

I sometimes joke that, in the tax world, when it comes to name recognition, CPAs are like the United States and enrolled agents are like Liechtenstein.

Liechtenstein, kindred spirit to Enrolled Agents
(Image courtesy of Wikipedia)

Based on IRS stats on who has been issued preparer tax identification numbers, there are actually more enrolled agents (42,895) than attorneys (31,189) in the tax world. But CPAs (212,975) outnumber us all.

In terms of name recognition, EAs are far, far behind. We may outnumber attorneys but that doesn’t mean our name recognition is better than that of attorneys, and we are light years behind CPAs.

When people hear “CPA” they think “tax expert.”

When people hear “enrolled agent,” they think either “what the hell is that?” or “he must work for the IRS, flee for your lives!”

As much as it pains me to write that, it’s a fact.

(For further reading, see my last article on this topic: “Why Are Enrolled Agents So Crabby?”)

RTRPs Poised for an Overthrow of CPAs?

Earlier this week, the AICPA published this article in which the author wrings her hands over the potential number of “registered tax return preparers” out there — potentially more than 340,000, though only about 4,900 have actually passed the exam so far — and how this could adversely impact CPAs. Bruce McFarland posted a response to the AICPA article, titled “Why Was My Voice Not Heard By the AICPA?”, in which Bruce rightfully takes the AICPA to task for assuming that CPA automatically equals “tax expert.”

So will RTRPs overtake CPAs as the “United States” of the tax world? It could happen, though I still think the CPA brand name is golden.

And it’s not like these 340,000 potential RTRPs are newcomers to the field. Most of them have probably been in business for years — in competition with CPAs, attorneys and EAs — and operating as “tax preparers.” Now they get to tack the word “registered” onto their name.

Will that really be some sort of death blow to CPAs? I doubt it.

But because “registered tax preparer” is a lot more publicly palatable title than something with the word “agent” in it, it could push EAs further into obscurity, which is scary.

After all, what’s more obscure than Liechtenstein? Burkina Faso? Myanmar?

(Okay, according to this website, a country called Nauru, an island nation in the Pacific Ocean, is the most obscure country in the world. Liechtenstein is #15 on the list. Burkina Faso is #14. Myanmar is not on the list. And now you know.)

When Will Tax Complexity Cause a Collapse?

February 20, 2013 in Editorial Commentary with 8 Comments

The tax code, as most everyone knows and acknowledges, is ridiculously complex and getting more complex all the time.

When will the complexity cause the system to collapse? And what, exactly, will collapse?

I can see things going bad in three different areas:

1. The tax and accounting industry

A few weeks ago, the IRS announced a “simplified” method of calculating the deduction for business use of the home. On a message board for tax pros, I saw some pros saying this was good because now we’ll have to calculate the deduction two different ways to see whether it’s better to take actual expenses or the standard deduction — which means a higher fee for returns claiming the deduction for business use of the home.

Also, many of us have significantly increased our fee for tax returns claiming the earned income credit due to ridiculous new documentation requirements being placed on practitioners for EIC claims.

The normal course of a complex system is that it will get more complex. But how much longer can our industry respond to every increase in complexity with “ooh, we can raise fees”?

The average fee, nationwide, for preparation of a 1040 with itemized deductions is now $246. That seems awfully high of a fee to charge someone with a W-2 who happens to itemize because they own a house.

Maybe I feel that way because fees in Iowa are low — some outfits in Iowa (even some CPA firms!) charge less than $100 for that type of return.

How much higher can fees go before clients revolt? Good lord, I’ve had people complaining this year about my fee going from $125 to $130 for a return with itemized deductions.

As fees go up, more and more people will turn to TurboTax. At some point, won’t profit margins stagnate because fees simply can’t go higher, and clients are leaving?

This may not cause a “collapse” of the accounting industry, but stagnation wouldn’t be good.

Oh, and speaking of TurboTax ….

2. TurboTax and other DIY software

As professional fees go up, more people turn to TurboTax and other DIY software. After all, as I’ve heard asked before — why waste your money on a professional when you can do it yourself in TurboTax much more cheaply?

Right?

But the big selling point of TurboTax is not just its price but the fact that it supposedly makes taxes “easy.” Growing complexity means ever-growing screens with ever-more questions.

It’s not that TurboTax’s software won’t be able to handle the calculations correctly. That’s just a matter of getting the software’s coding right.

But how on earth will TurboTax and other DIY providers be able to keep their software user-friendly as the tax code gets more and more complicated?

At what point does the DIY software collapse under the weight of a system that’s too complex to make palatable, thus rendering the DIY software unusable?

3. The tax code itself

What would a collapse of the tax code look like? I don’t know. In my mind, the term “collapse” when applied to the government conjures up images of pitchforks and torches, nuclear holocaust, Mad Max/Hunger Games type of chaos.

But I doubt that’s what will happen when and if the tax code collapses. More likely, it will simply become so cumbersome that enforcement of all the arcane rules is rendered impossible and citizens just start throwing numbers on forms without really knowing what they’re doing.

I’m not asking the question rhetorically; I really am wondering about this, and I’m curious what tax pros and average taxpayers think about my latest long missive.

Further Thoughts on Preparer Regulation

January 22, 2013 in Editorial Commentary with 12 Comments

It’s been a long, long time since I’ve written a long, rambling, stream-of-conscience blog post full of side notes and parenthetical references. But when I sat down to write this post, a whole lot of thoughts came out. So here, in 600+ words, is my opinion on the apparent death of the RTRP designation, and what the future holds, especially for Enrolled Agents like me.

—–

The IRS lost a court case on Friday that basically dismantles the entire preparer oversight system the IRS had tried to implement.

No more RTRP exam. Apparently the RTRP designation itself — at least as envisioned by the IRS — goes away.

I haven’t posted anything about this ruling because 1) I didn’t get a chance to post my thoughts right away, and by now, this topic has been covered by many others (click here to see Joe Kristan’s opinion on the ruling; Joe provides links to more than 10 other articles on Friday’s ruling); and 2) my opinion hasn’t changed from what I’ve consistently said before — the IRS’s attempts at preparer oversight were doomed to failure and created unneccessary beuracracy in the form of a useless RTRP examination.

National Institute of RTRPs?

Robert Flach (aka The Wandering Tax Pro) responded to the ruling by proposing the creation of an independent organization called the “National Institute of RTRPs” that would issue and oversee the RTRP license.

Robert’s idea has a lot of merit. An independent overseer of the RTRP designation would be more likely to be successful than the IRS’s lame attempt. And certainly there needs to be some way to hold the unlicensed accountable, especially in regards to continuing education.

But as an EA, I will always be concerned with defending the EA “brand” — what little “brand” we have.

The EA designation was/is superior to the RTRP designation in every way, yet there was and still is a very real possibility that EAs would get steamrolled and pushed even further to the fringes of the tax world — even though we should be at the FOREFRONT of the tax world, instead of being treated as the equivalent of Liechtenstein.

Outnumbered 12 to 1

As of January 3, there were 48,000 EAs, 53,000 RTRPs, and another 320,000 unlicensed preparers who needed to take the RTRP test.

Add in 225,000 CPAs in the tax world and the numbers are: nearly 600,000 preparers who are unlicensed/RTRP or CPA.

And just 48,000 EAs.

We’re outnumbered 12 to 1.

CPAs already have the backing of the AICPA. If RTRPs get the legitimacy of a national, independent organization, they could easily join CPAs as the “United States of the tax world” (read my “Lichtenstein” article to understand my comparison of designations to countries).

We’re outnumbered by designations that have, or could have, the backing of large, national organizations to tout the wonders of their designation.

So where do EAs fit in?

I Refuse to Become an RTRP

Some will say “well, just become an RTRP.”

But why should I have to get a LESSER DESIGNATION?

We’re equals to CPAs (in the tax world) but I guarantee that most people think EA is a lesser designation than CPA. And I have a feeling most people will think EA is a lesser designation than RTRP or whatever the hypothetical independent organization would choose to call it.

We have a major branding problem, and I’m not sure how to fix it.

It’s Not About “Going Out of Business”

Whatever happens, my practice will be fine. I’m not worried about going out of business.

I’ve never had a client question my designation.

(I did have an investment advisor tell me one time that I need to become a CPA if I “want to make it” in this business. I just smiled politely back at him.)

Upwards of 90% of my new business comes from referrals from other clients, from professionals I’m connected with, or from professional groups I belong to. I’m not going head-to-head with CPAs, RTRPs or unlicensed preparers for clients, not really. I’ve made connections, and those connections funnel business to me.

I’ll keep chugging along.

My concern is more for the EA name itself. I really fear that EAs are getting pushed further and further to the margins. We’ve always been on the margins, so how much further can we be pushed?

The problem is, there’s no good solution for how to enhance and protect the EA name, because there’s so few of us.

So again, where do EAs fit in? There’s just not a good answer or good solution.

The IRS — Putting Paperwork Ahead of People

January 9, 2013 in Editorial Commentary with 1 Comment

For more than 4 months, I’ve been blogging about one of my clients who’s going through a nightmare trying to get the IRS to resolve an identity theft case involving her deceased husband.

The husband — his name is Brian — died in mid-January 2010. That’s almost 3 years ago.

I filed the 2010 tax return for Brian and his surviving spouse, Wendy, in April 2011. This is when the we discovered the identity theft. April 2011 was 20 months ago.

In October 2011, We sent the IRS some paperwork that they said they needed in order to resolve the identity theft. That’s 14 months ago.

The IRS says the paperwork we sent them in October 2011 had an error and needed re-sent. We didn’t find out about this from the IRS until November of this year. In September of this year (11 months after the paperwork was filed), the IRS had tried calling Wendy to tell her about the problem. But they dialed an old, out-of-service number and didn’t get ahold of her.

And with that, they apparently gave up.

When I talked to the IRS in November and they told me about needing the paperwork re-sent, I told them that they were being ridiculous. It’s obvious that the 2010 tax return that Wendy filed is the correct tax return. Common sense tells you that. So can’t they just process the return and pay this poor widow her refund so she can get on with her life?

The answer was no, they couldn’t. They needed the paperwork. And once we sent the paperwork, it would take up to 200 days to process! (Though the IRS rep told me it might take “only 90 days” to process since they already had some of Wendy’s info in their system.)

Pointless paperwork.

The only difference between what we sent them in November 2012 versus October 2011 is swapping out Wendy’s name for Brian’s name. This was the “error.”

A clerical issue.

So here we are. Months — YEARS — later. No resolution, because the IRS needs its paperwork to be just so.

I don’t begrudge the IRS its need for paperwork. I really don’t.

But at some point, after they’ve jerked a widow around, and months and months and months have passed, shouldn’t common sense trump a clerical issue on a piece of paper?

So that’s the Internal Revenue “Service.”

Putting paperwork ahead of people.

Tax Predictions for 2013

January 4, 2013 in Editorial Commentary with 1 Comment

It’s time for me to make my tax predictions for 2013. Last year, I made 6 predictions. This year, there’s only 3:

1. No tax reform at all in 2013.

It looks like the “fiscal cliff” bill Congress passed extends almost all major tax provisions at least 2 years, and in some cases 4 years, so we won’t see tax reform or tax simplification this year, and probably not at all during the rest of the Obama administration.

2. Some sort of gimmick tax break will be enacted to make up for the payroll tax holiday expiring.

I don’t think a lot of folks have grasped that the payroll tax holiday went away 1/1/13. For a person making $40,000/year, this means an $800 decrease in take-home pay in 2013 compared to what people had been used to while the 2% reduction “holiday” was in effect in 2011 and 2012.

While Congress allowed the holiday to expire, I am convinced they’ll replace it with something. My bet is on a revival of the “Making Work Pay Credit.” The only thing I’m not sure of is if the credit will be paid as a lump-sum rebate check, or if it will be paid bit-by-bit through a reduction in income tax withholding.

3. The IRS won’t extend the RTRP testing deadline.

The deadline for unlicensed tax preparers to take the minimum competency exam (the RTRP exam) is December 31, 2013. As of December 2012 there were approximately 300,000 people who still had to take the exam. If they don’t pass the test by the end of 2013, they’ll be forced out of the tax prep business.

Given these numbers, will the IRS extend the deadline? For a long time, I had thought that yes, they would. But now, I think the answer is no, they won’t.

I agree with fellow Enrolled Agent David Fazio, who said (and I’m paraphrasing) in a comment to this blog post, that the IRS would lose authority if it extends the deadline. The IRS would look ineffective and it would give the appearance that people can just ignore the rules and the IRS will cave in.

And even though I don’t really support this whole preparer regulation thing, I don’t weep for the unenrolled who haven’t taken the exam. It’s an open-book test over Publication 17, for crying out loud. And the test and the 12/31/13 deadline have been known about for a long time.

—

As always, my December 31, 2013, blog post will be a review of how accurate my predictions were.

6 Tax Predictions for 2012 — How Did I Do?

December 31, 2012 in Editorial Commentary with 1 Comment

At this time last year, I published 6 tax predictions for 2012. Here’s how I did:

Prediction 1: Congress will extend the “2-month” payroll tax cut for the rest of the year.

Outcome: correct. They extended the 2% reduction in payroll taxes through 12/31/12.

Prediction 2: No tax reform will take place this year. It’s an election year so neither party will want to put forth anything that might rock the boat.

Outcome: correct.

Prediction 3: Once the elections are over, Congress will execute its favorite play — the punt — by extending the “Bush Tax Cuts” for another year or two. This will probably happen, with much drama, right before Christmas.

Outcome: incomplete. I still think they will extend all tax provisions for another year or two, but it obviously didn’t happen before Christmas!

Prediction 4: Most of the tax provisions that expire 12/31/11 (such as the AMT patch) will be extended along with the Bush Tax Cuts.

Outcome: incomplete, but again, I expect this to happen.

Prediction 5: Along with extending the Bush Tax Cuts and other tax provisions into 2013, Congress will either a) extend the payroll tax cut into 2013 or b) let the payroll tax cut expire but replace it with some other gimmick tax break.

Outcome: incomplete. I tend to lean toward option “b”, the “gimmick” option, for 2013 (as in, resuscitating the Making Work Pay credit). More on this when I give my predictions for 2013 in a few days.

Prediction 6: IRS efforts to regulate preparers will not have the desired effect, in 2012 or beyond. I think the result of this bureaucracy that is being created is that more burdens and annoyances will be placed on preparers, with no discernible benefit to consumers.

Outcome: correct. As of December 10, there are 304,077 unlicensed preparers who have not taken the RTRP exam. The deadline for passing the test is one year from today (12/31/13). That’s a lot of people who could be forced out of business if they don’t pass a basic, open-book test. Will the IRS extend the deadline? I was part of a Twitter debate about this last week. No one knows the answer.

Also, all the “buzz” around the RTRP designation seems to be generated from those of us in the blogosphere going back and forth with each other. I have heard NOTHING about the RTRP designation from the public at large. Nothing at all.

The IRS was supposed to launch a public relations campaign about the new licensing/registration requirements. Where has that campaign been? Are they waiting til after the 12/31/13 deadline passes?

I think it would be a stretch to say that these regulations are having the “desired effect.”

This Accountant’s Idea for Eliminating Kickoffs in the NFL

December 14, 2012 in Editorial Commentary with 1 Comment

Roger Goodell, the commissioner of the National Football League, has floated the idea of eliminating kickoffs. Instead of a kickoff after a team scores, the team that scored would get the ball at its own 30 yard line in a 4th down and 15 yards to go situation. The team would have the choice of punting, or trying to convert a 1st down (and if they fail, the other team would get the ball in great field position).

I’m a stat geek and a sports fan (baseball is really my first love). When I was in high school, I was the statistician for the basketball team, and worked as a spotter in the football press box.

I also started a fantasy football league when I was 15 — long before fantasy football really became popular. And I even tried to create a football power rating system from scratch.

Yes, I was, and still am, a nerd.

Sports statistics as a teenager were my “gateway drug” into the world of taxes.

So I bounce ideas around in my head about sports all the time. Even before Goodell came out with his idea, I’ve been toying with an idea that calls for not just eliminating kickoffs, but eliminating the entire kicking game from football altogether.

My proposal is this:

  1. No more kickoffs, punts, field goals or extra-point kicks. The objective of football is to get the ball into the endzone. So, reward teams that get the ball into the end zone.
  2. The team that gets the ball first would not receive a kickoff. Instead, the ball would simply be placed at a certain yard line (probably that team’s own 35) and play would proceed from there, the same as always. Except ….
  3. No punting, no field goals. If it’s 4th down, you have to go for it. If you don’t convert, the other team gets the ball.
  4. Touchdowns are still worth 6 points. After a score, the scoring team goes for the 2-point conversion. If they convert, they get to keep possession of the football, 1st and 10 at their own 35. If they fail to convert, the other team gets the ball at its own 35 yard line. Right now, 2-point conversions take place from the 2 yard line, and the conversion rate is usually around 50%. I would propose moving the conversion back to, say, the 5 yard line, to add to the degree of difficulty.

There are plenty of flaws with my idea, but it’s something I cooked up earlier this football season (I think I was watching the Chiefs play when I came up with this idea, which may explain why my mind started to wander).

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