The next seasonal tax preparer hired for a community tax service may be a high school student.

USA Today reports that high schools across the country are turning students as young as freshmen into IRS-certified tax preparers and having them do free tax returns for low-income community members in partnership with the IRS’ Volunteer Income Tax Assistance program (VITA).

 In a time where education reform is the subject of national conversation, and President Obama says he expects high schools to be able to graduate kids into the workforce, these programs are teaching kids real-life skills using real-life experience. Many may eventually become accounting majors and professional tax-preparers.

 What’s more, the 16,000 or so returns prepared per year through the program and its companion program, Tax Counseling for the Elderly, endear the 77 schools providing free tax preparation to their surrounding communities. The programs together scored a total of $3.8 billion in tax refunds last year.

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Source:  USA Today

More than $1 billion in tax revenue is collected by the Internal Revenue Service each year from the paychecks of illegal alien workers in the United States.  Those workers know that they are being denied refunds on the money they pay, but fear they may lose their jobs if they press the issue.

Staff Writer Winthrop Quigley of the Albuquerque Journal wrote of the dilemma this poses in the May 19 issue of the paper.

According to Quigley, tax preparers say that illegal immigrants believe the state of New Mexico is deliberately keeping the money owed the taxpayers to encourage them to leave the state. New Mexico Taxation and Revenue Secretary Demesia Padilla said the state is just trying to make sure the refunds get to the right taxpayers.

Experts estimate between 50 and 70 percent of foreign nationals who are living in the United States illegally pay income tax. It isn’t clear precisely how much they pay, but it appears to be more than $1 billion a year to the federal government.

The IRS doesn’t distinguish between foreign nationals in the country legally and those here illegally. To the tax man, an alien is either resident or nonresident.

A nonresident alien is typically taxed only on “income which is derived from sources within the United States and/or income that is effectively connected with a U.S. trade or business,” according to the IRS. Resident aliens’ incomes are taxed the same way as a citizen’s. An alien is resident if he or she lives in the United States for the required number of days out of a year, which makes many illegal immigrants resident aliens for tax purposes.

However, since a worker in the country illegally isn’t entitled to a Social Security number or benefits, filling out the paperwork so taxes can be paid and refunds collected is a challenge.

The IRS’s solution is to issue an individual taxpayer identification number, or ITIN, to people who aren’t eligible to get Social Security numbers. The IRS says ITINs are issued “regardless of immigration status” and can be used only to report tax information.

So far so good, but when the illegal immigrant shows up on the job site and is required by the employer to fill out an income-tax withholding form, the boss wants to see a Social Security number, so the worker will invent one. In addition to income-tax withholding, 7 percent of the workers’ wages is taxed for Social Security benefits that the worker will never collect.

At tax time, the IRS is able to match the ITIN with the fake Social Security number the employer has used to withhold income taxes. Until last year, the state did the same thing, and even now tax returns filed on paper seem to be processed without a hitch.

Returns filed electronically are being rejected. Taxpayers are sent a letter saying there are “discrepancies” between the “personal identifying information submitted on the return” and “supporting documents,” which is to say the Social Security number on the taxpayer’s documents isn’t found in Taxation and Revenue records.

The immigration laws Congress has been debating are only a piece of the legal maze illegal immigrants must navigate. State and federal tax laws add another layer of complexity to already complicated lives.

Neither the Internal Revenue Service nor the state Taxation and Revenue Department care how a taxpayer got here so long as he or she pays the taxes owed.

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Source:  The Albuquerque (NM) Journal

Due to Budget and Sequester; Filing and Payment Deadlines Unchanged

WASHINGTON — The Internal Revenue Service today reminded taxpayers that, due to the current budget situation including the sequester, the agency will be shut down on Friday, June 14.

As was the case on May 24, the first furlough day, all IRS operations will again be closed on June 14. This means that all IRS offices, including all toll-free hotlines, the Taxpayer Advocate Service and the agency’s nearly 400 taxpayer assistance centers nationwide, will be closed.

IRS employees will be furloughed without pay. No tax returns will be processed and no compliance-related activities will take place. In addition, the online preparer tax identification number PTIN system for tax professionals will also be shut down.

The IRS noted that taxpayers should continue to file their returns and pay any taxes due as usual. This includes the June 17 deadline for those making a second-quarter estimated tax payment. It also includes the June 17 filing deadline for taxpayers abroad and the June 30 deadline for filing foreign financial account reports FBAR Taxpayers needing to contact the IRS about these or other upcoming returns or payments should be sure to take this Friday’s closure into account.

Because none of the furlough days are considered federal holidays, the shutdown will have no impact on any tax-filing or tax-payment deadlines. The IRS will be unable to accept or acknowledge receipt of electronically-filed returns on any day the agency is shut down.

The only tax-payment deadlines coinciding with any of the furlough days relate to employment and excise tax deposits made by business taxpayers. These deposits must be made through the Treasury Department’s Electronic Federal Tax Payment System (EFTPS), which will operate as usual.

On the other hand, the agency will give taxpayers extra time to comply with a request to provide documents to the IRS. This includes administrative summonses, requests for records in connection with a return examination, review or compliance check, or document requests related to a collection matter. No additional time is given to respond to other agencies or the courts.

Where the last day for responding to an IRS request falls on June 14, the taxpayer will have until Monday, June 17–the next business day.

Some web-based online tools and phone-based automated services will continue to function this Friday, while others will be shut down. Available services include Withholding Calculator, Order A Transcript, EITC Assistant, Interactive Tax Assistant, Tele-Tax and the Online Look-up Tool for those needing to repay the first-time homebuyer credit. Services not available this Friday include Where’s My Refund? and the Online Payment Agreement. Visit online tools on IRS.gov to learn more about these tools.

The remaining scheduled furlough days are July 5, July 22 and Aug. 30, 2013. If necessary, the IRS may announce one or two additional furlough days.

Issue Number:    IR-2013-60

 The Internal Revenue Service has announced that interest rates will remain the same for the calendar quarter beginning July 1, 2013, as in the prior quarter. The rates will be:

• three (3) percent for overpayments [two (2) percent in the case of a corporation];
• three (3) percent for underpayments;
• five (5) percent for large corporate underpayments; and
• one-half (0.5) percent for the portion of a corporate overpayment exceeding $10,000.

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.

Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

The interest rates announced today are computed from the federal short-term rate determined during April 2013 to take effect May 1, 2013, based on daily compounding.

The interest rates are provided in Revenue Ruling 2013-10.

Source:  Internal Revenue Service

Tax practitioners react strongly, petition the IRS to reverse course on e-Services scale back

By Jim Buttonow, CPA, CITP

The IRS confirmed Friday that it plans to retire two major e-Services incentive products used by CPAs, attorneys and enrolled agents to file authorizations and resolve IRS account problems.

The IRS announced that it will retire the Disclosure Authorization and Electronic Account Resolution e-Services products Aug. 11, “due largely to low usage.” The IRS stated that it increased the number of employees and improved its internal processes in response to this change.

The two major e-Services products slated for retirement serve several common functions for tax professionals:

Disclosure Authorization (DA) allows for real-time input of Form 2848, Power of Attorney and Declaration of Representative, and Form 8821, Tax Information Authorization, eliminating the waiting period resulting from IRS processing delays that occur when mailing or faxing disclosure authorizations to the IRS. According to the IRS announcement, the current average processing time for mailed or faxed authorizations is 10 days.

Electronic Account Resolution (EAR) gives tax professionals electronic access the IRS Practitioner Priority Service (PPS) to resolve client account problems. There are seven EAR inquiries available, allowing tax professionals to address client issues such as notice research, installment agreement requests and refund issues. This allows for convenient communication with the IRS about client issues and eliminates time spent waiting to speak with a PPS representative by phone.

 IRS move draws sharp criticism from practitioners

 After learning of the IRS announcement to retire the two e-Services products, many practitioners were upset and disappointed to learn that they will lose the convenience of interacting with the IRS electronically.

 “It is just insane that they made such progress in customer service with the e-Services program, and now they are shoving everything into reverse,” said CPA George Prytula, III. “This is tantamount to all major banks telling us that they are shutting down all of their ATM machines, and going back to just lobby counter service.”

 Some practitioners also pointed to a lack of IRS outreach when it comes to educating practitioners and publicizing the various uses of e-Services incentive products.

“I think they just haven’t promoted it enough generally to practitioners,” said Pamela Britz, EA. “I use these two [DA and EAR] – especially filing POAs – quite often.”

A look at the alternatives

The IRS has not been explicit about electronic alternatives it will offer to support functions previously available in DA and EAR, though it promised in its announcement Friday that it would look for electronic solutions going forward.

 As an alternative to DA, the IRS instructed tax professionals to or fax or mail authorizations to the appropriate IRS location and allow at least four days for processing.

Tax professionals can use the Online Payment Arrangement tool in lieu of the installment agreement request in the EAR product, although a number of practitioners have expressed difficulty using this tool. There are currently no other online options to replace the other six EAR functions. As a general alternative, the IRS directed practitioners to call the PPS line at 1-866-860-4259 for help resolving account-related issues.

However, many practitioners expressed dissatisfaction with that alternative, citing long wait times. According to the Government Accountability Office (GAO), in 2012, the average PPS hold time [jw1] was more than 22 minutes per call – up from just under 5 minutes per call in 2009.

CPA John Stanbery is one practitioner who prefers using e-Services to calling the IRS. “It certainly beats being on hold for 45 minutes,” Stanbery said.   

 Budget setbacks

 Reduced IRS budgets and staffing may also affect PPS customer service, as representatives are forced to accommodate the extra workload resulting from e-Services cutbacks.

 In 2012, the IRS experienced its second straight year of budget cuts, brought upon by the sequester, totaling almost $1 billion over the past two years. From 2010 to 2012, the IRS also reduced its staff by 7,000 employees.[JW2] 

 With budget and staff reductions at the IRS, many practitioners think it’s a surprising decision for the IRS to move from an electronic customer service system back to one-on-one, phone-based support.

A step backward?

Although the IRS announced Friday that it is responding to e-Services cutbacks with more employees to process authorizations, the IRS decision to retire two online tools appears out of step with government reports and advisory board recommendations on enhancing technology for tax administration. A variety of reports point to the IRS need for new and better technology – at a time when taxpayers and practitioners are increasingly adopting electronic tools.

According to an electronic roadmap set forth by the Office of Online Services and reported by the GAO [JW3] earlier this year, the IRS continues to plan for enhanced online tools for taxpayers. However, providing electronic tools to tax professionals, who prepare 60[JW4] % of all tax returns, is a cost-effective strategy described by the Internal Revenue Service Advisory Council in its 2012 Public Report[JW5] :

 “The IRS would like to increase practitioner reliance on e-service tools and decrease reliance on one-on-one contact through the IRS Practitioner Priority Service (PPS). Transferring practitioners to e-services when appropriate can increase assistor availability for issues that require an assistor’s support.”

The IRS decision to retire two e-Services products also appears counterintuitive in light of several technology initiatives being developed by the IRS, such as various information matching and identity verification programs. On April 9, in his testimony before Congress, former Acting IRS Commissioner Steven Miller made clear the agency’s IT priorities.

  “If you were to ask me, ‘If you had one last dollar … and that dollar was for bodies or for IT,’ I would take it for IT, because that is the lifeblood of our efficiency,” Miller said.

Practitioners are using e-Services

 In its announcement about retiring DA and EAR e-Services products, the IRS cited low usage of the products as a reason for the scale back. However, according to a Treasury Inspector General for Tax Administration (TIGTA) study from June 2012, there has been a demonstrated and steady increase [jw6] in practitioner usage of e-Services DA since its inception.

 In October and November 2011, there were more than 153,000 authorizations filed via DA, according to TIGTA.

 DA is popular among practitioners because it offers an efficient alternative to filing authorizations with the IRS Centralized Authorization File (CAF) unit, which experiences long average processing times. Currently, processing of disclosure authorizations by faxing the CAF is taking 10 business days, according to the IRS. Access via DA is instantaneous.

 Without electronic filing of authorizations, delays like Prytula’s will be inevitable for practitioners.

 “I mailed a power of attorney to the IRS two weeks ago, and then faxed another one two days ago, and both of them are still not yet in the IRS CAF system,” Prytula said. 

 Many practitioners are upset about the IRS decision to retire these products. Their responses have spurred a grassroots movement to petition the IRS to abandon its plans to retire the e-Services products or replace the products with other electronic solutions.

 View the petition.

 
Jim Buttonow, CPA/CITP, is cofounder of Beyond415. He has more than 26 years of experience in IRS practice and procedure. Reach Jim at JButtonow@Beyond415.com.

The Internal Revenue Service has announced the annual inflation adjustments for tax year 2013, including the tax rate schedules, and other tax changes from the recently passed American Taxpayer Relief Act of 2012.

The tax items for 2013 of greatest interest to most taxpayers include the following changes.

• Beginning in tax year 2013 (generally for tax returns filed in 2014), a new tax rate of 39.6 percent has been added for individuals whose income exceeds $400,000 ($450,000 for married taxpayers filing a joint return). The other marginal rates — 10, 15, 25, 28, 33 and 35 percent — remain the same as in prior years. The guidance contains the taxable income thresholds for each of the marginal rates.
• The standard deduction rises to $6,100 ($12,200 for married couples filing jointly), up from $5,950 ($11,900 for married couples filing jointly) for tax year 2012.
• The American Taxpayer Relief Act of 2012 added a limitation for itemized deductions claimed on 2013 returns of individuals with incomes of $250,000 or more ($300,000 for married couples filing jointly).
• The personal exemption rises to $3,900, up from the 2012 exemption of $3,800. However beginning in 2013, the exemption is subject to a phase-out that begins with adjusted gross incomes of $250,000 ($300,000 for married couples filing jointly). It phases out completely at $372,500 ($422,500 for married couples filing jointly.)
• The Alternative Minimum Tax exemption amount for tax year 2013 is $51,900 ($80,800, for married couples filing jointly), set by the American Taxpayer Relief Act of 2012, which indexes future amounts for inflation. The 2012 exemption amount was $50,600 ($78,750 for married couples filing jointly).
• The maximum Earned Income Credit amount is $6,044 for taxpayers filing jointly who have 3 or more qualifying children, up from a total of $5,891 for tax year 2012.
• Estates of decedents who die during 2013 have a basic exclusion amount of $5,250,000, up from a total of $5,120,000 for estates of decedents who died in 2012.
• For tax year 2013, the monthly limitation regarding the aggregate fringe benefit exclusion amount for transit passes and transportation in a commuter highway vehicle is $245, up from $240 for tax year 2012 (the legislation provided a retroactive increase from the $125 limit that had been in place).

Details on these inflation adjustments and others are contained in Revenue Procedure 2013-15, which will be published in Internal Revenue Bulletin 2013-5 on Jan.28, 2013. Other inflation adjusted items were published in October 2012 in Revenue Procedure 2012-41.

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Source:  Internal Revenue Service

Lavish meals at the finest restaurants, high-dollar sports cars with all the bells and whistles, and extravagant homes in high-scale neighborhoods – these are things celebrities consider normal.  Perhaps they’ve neglected to realize, that their normal is often the same as the average American – at least when it comes to Uncle Sam.  Like it or not, there’s no place to hide.

One name that comes to mind when you think about celebrities with tax woes is Willie Nelson. However, he’s not the celebrity with the largest tax bill.  Care to take a guess who tops the list of offenders? 

Here are a couple of hints.  He was recently released from jail after serving a three-year sentence for failure to file U.S. income tax returns for five consecutive years; he’s earned multiple black belts in several karate disciplines; and he’s starred in multiple Blade movies, White Men Can’t Jump, and Demolition Man.  

That’s right.  Wesley Snipes tops the list of with a tax bill totaling $17 million.

Which other celebrities are on the list?  Well, Willie Nelson remains near the top with a tax bill of $16.7 million.  Dionne Warwick racked up $10 million; Sinbad skipped out on $8.15 million; and Nicholas Cage reached $6.2 million.  Martin Scorsese, Ozzy and Sharon Osbourne, Al Sharpton, Annie Leibovitz, and Lionel Richie all succeed to surpass $1 million tax bills, too.  Several other celebrities make the list including Lil’ Kim, Val Kilmer, Pamela Anderson, O.J. Simpson, Stephen Baldwin, Christina Ricci, Al Capone, Chuck Berry, and Sophia Loren.

When it comes right down to it, Uncle Sam doesn’t care who you are, what you do, or who you know.  He only cares that you pay your taxes.

by Kenya Hoffart, Industry Writer

It is a form of crime unique to the 21^st Century, as the massive collection of data from consumers and a lack of sophisticated computer security measures combine to offer thieves a simple and relatively safe way to steal.   First used to steal credit card numbers, identity theft focuses today on information such as Social Security Numbers, dates of birth, and home addresses.

This article focuses on ways tax preparers can help stem the tide of identity theft and fraudulent tax returns.

To download the article, complete the form below. You will receive an email with the download link.

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Tax Reform is once more on the agenda for Congress.  But Robert Samuelson, columnist for the Washington Post, says that any real reform is unlikely:

“In 2010, calculating their taxes cost Americans $168 billion, estimates the Taxpayer Advocate Service of the Internal Revenue Service. That’s about 15 percent of taxes collected — a heavy overhead. Almost 60 percent of taxpayers pay accountants or other tax preparers. Public esteem for the tax system is low; in a 2011 Pew poll, 55 percent judged it unfair. Disaffection was fairly even politically: 47 percent among Republicans, 58 percent among Democrats and 56 percent among independents.

So “tax reform” ought to be a cinch, right? Well, no.

True, it’s again on the national agenda. Both the White House and congressional Republicans support it. But judged realistically, the odds of major “reform” passing seem slim. The job is technically daunting (the tax code runs almost 74,000 pages). There’s ample competition for Congress’ attention: an immigration overhaul, gun control plus the ongoing budget battle. Most important, the apparent consensus to “do something” is a mirage, erased by three major problems.

First: Democrats and Republicans — with some exceptions — have fundamentally different views of what constitutes “reform.”

Republicans have generally remained faithful to the central idea behind the landmark Tax Reform Act of 1986, which commanded bipartisan support. Tax reform then meant “broadening the base” — eliminating deductions, credits and other preferences — and using the resulting revenues to lower overall tax rates. The Tax Reform Act reduced the top individual rate from 50 percent to 28 percent. Now, Republicans want any new tax bill also to be “revenue neutral.

By contrast, Democrats — again, with exceptions — now see “reform” as a way to make the system more progressive. They’d raise taxes on the well-to-do and rich through higher rates or fewer preferences. The extra revenue would go to deficit reduction or middle-class tax relief.

Second: Though deplored in the abstract, tax breaks are popular with the public and politicians.

The value of tax breaks is roughly reckoned at about $1 trillion annually. There seems ample room for trimming.

Guess again. Tax breaks have huge constituencies. The largest is the exclusion of employer-paid health insurance from the income tax. That’s worth an estimated $213 billion in 2014. If Congress tried to reduce it, there would be howls of protest — from affected workers and firms, insurance companies, hospitals. The next largest is the deductibility of home mortgage interest: $101 billion. Builders, real estate agents and homeowners would resist any cut. Charitable contributions ($54 billion) and individual retirement accounts ($19 billion) also involve big breaks. Politicians abet tax complexity, because dispensing preferences enhances their power. This helps explain why the Tax Reform Act unraveled. New tax breaks multiplied; rates were raised.

Finally: It’s hard to show that tax reform increases economic growth — even if it does.

A major argument for the 1986 law was that lower tax rates would spur economic growth, because workers and investors would keep a larger share of the last (“marginal”) dollar earned. This, it was said, would promote more work effort, risk-taking and investment. Although the period after the Tax Reform Act was prosperous, academic studies have trouble separating the effects of lower tax rates from developments in technology, shifts in the business cycle and other economic changes. Thus, some benefits from “tax reform” are abstract; losses — for those whose tax preferences end — are tangible.

There is a countervailing force. The chairmen of Congress’ tax-writing committees — the Senate Finance Committee, headed by Democrat Max Baucus, and the House Ways and Means Committee, under Republican Dave Camp — seem determined to pass major legislation. Their task will be to encourage compromises that overcome these obstacles. Otherwise, legislation will probably bog down.

‘Any big reform is going to create losers,” says economist Eugene Steuerle of the Urban Institute, a top Treasury official during the 1986 debate. Despite that, his advice is to do more, not less. “The lobbyists are going to scream just as loud if you go small or go big,’ he says. Advocates need to counter that changes represent ‘significant improvements over what we have’ in terms of simplicity, fairness and efficiency.

What saved the 1986 law was bipartisanship. ‘If you want reform, both sides have to come away being able to claim victory,” says Steuerle. In today’s climate, that’s a tall order.’”

by Dave McClure, Industry Writer

Drake Software

In a world gone mobile, tax and accounting professionals need more than just a means of communicating with clients. They need a secure communications solution so that critical client data is protected. They need a branded solution that will help build recognition for their firm. They need a solution that is accessible at all hours of the day from anywhere in the world.

They need a client portal like SecureFilePro.

Introduced by Drake Software in January 2012, SecureFilePro is a safe and convenient site that allows professionals and their clients to exchange documents such as tax returns and financial statements through a secure website. Branded with your firm’s name and logo, the site allows clients to upload information and allows the firm to send completed tax returns and other documents back to the client. It also provides secure storage of documents, so that either party may access the information afterward from anywhere in the world, at any time it is needed.

SecureFilePro offers tax and accounting professionals six major benefits:

• It provides paperless document exchange so that professionals spend less time printing, faxing or mailing documents to clients each time they need a copy.
• It’s personal. The client sees the information relevant to his or her firm, with access restricted to those members of the client company that the client designates.
• It’s secure. The portal site and its client files are protected by tough, industry-standard 256-bit SSL encryption. The files are stored on Drake’s secure servers, with redundant power and protection systems to guard against physical disasters and security breaches.
• It’s a Web-based application in the Cloud, SecureFilePro works with virtually any computer, tablet or smartphone, and virtually any web browser.
• It’s updated regularly to keep current with the needs of professionals. Recent enhancements include the ability to set file expiration dates and customizes default expiration dates; the ability to customize e-mail sent to customers (including the  logo, text, and footers); and the ability to move and copy files within the client’s portal or between Public and Private folders.
• It is fully integrated with Drake’s award-winning tax preparation and document management solutions for exceptional ease of
  use.

Try the free trial of SecureFilePro to evaluate it. It is available, with capacity for 250 MB of data (about 500 documents), offering customer branding, unlimited clients, and unlimited accounts. Three tiers of continuing service are offered: Basic, with 250 MB service for $9.95 per month or $99.95 per year; Standard, with 1 GB service (roughly 2,000 documents) for $19.95 per month or $199.95 per year; and Deluxe, with 5 GB service (roughly 10,000 documents) for $29.95 per month or $299.95 per year. Firms requiring more storage space above the Deluxe level may purchase it for $10 per month for an additional 5 GB.

For more than 30 years, Drake Software has provided tax preparers and accountants with fast, reliable software to prepare and file taxes. And to meet the evolving needs of clients, we now provide SecureFilePro as a safe and convenient online communication and file sharing for professionals.

 For more information on SecureFilePro, please complete the form below:

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