You Can Start Filing Tax Returns Today

Today the IRS finally starts accepting 2012 individual tax return filings.  It is January 30, 2013.

Why so late? You recall that Congress passed, and the President signed, a tax bill on January 1, 2013. This tax bill was retroactive to 2012. While the IRS tried to anticipate what would be in the bill, to do so exactly is nearly impossible. The IRS in turn separated the tax changes into two categories: those affecting the most people and the balance of the changes. It has programmed those changes with the widest effect, and this first category of taxpayers can begin filing today.

So if you claim state sales tax (because your state does not have an income tax), claim an education deduction or claim schoolteacher expenses, you can begin filing today.

What if you claim depreciation, own and rent a duplex or have a kid in college and claim an education tax credit (rather than a deduction)? You are in the second group and have to wait until late February or March. Your tax preparer can prepare your tax return, but he/she cannot send it to the IRS until then.

Here is the list of tax changes and forms included in the second category, if you wish to labor through them:

• Form 3800 General Business Credit
• Form 4136 Credit for Federal Tax Paid on Fuels
• Form 4562 Depreciation and Amortization (Including Information on Listed Property)
• Form 5074 Allocation of Individual Income Tax to Guam or the Commonwealth of the Northern Mariana Islands
• Form 5471 Information Return of U.S. Persons With Respect to Certain Foreign Corporations
• Form 5695 Residential Energy Credits
• Form 5735 American Samoa Economic Development Credit 
• Form 5884 Work Opportunity Credit
• Form 6478 Credit for Alcohol Used as Fuel
• Form 6765 Credit for Increasing Research Activities
• Form 8396 Mortgage Interest Credit
• Form 8582 Passive Activity Loss Limitations
• Form 8820 Orphan Drug Credit
• Form 8834 Qualified Plug-in Electric and Electric Vehicle Credit
• Form 8839 Qualified Adoption Expenses
• Form 8844 Empowerment Zone and Renewal Community Employment Credit
• Form 8845 Indian Employment Credit
• Form 8859 District of Columbia First-Time Homebuyer Credit
• Form 8864 Biodiesel and Renewable Diesel Fuels Credit
• Form 8874 New Markets Credits
• Form 8900 Qualified Railroad Track Maintenance Credit
• Form 8903 Domestic Production Activities Deduction
• Form 8908 Energy Efficient Home Credit
• Form 8909 Energy Efficient Appliance Credit
• Form 8910 Alternative Motor Vehicle Credit
• Form 8911 Alternative Fuel Vehicle Refueling Property Credit
• Form 8912 Credit to Holders of Tax Credit Bonds
• Form 8923 Mine Rescue Team Training Credit
• Form 8932 Credit for Employer Differential Wage Payments
• Form 8936 Qualified Plug-in Electric Drive Motor Vehicle Credit

There is some rhyme or reason to what the IRS is doing. Category two changes require more extensive programming. In addition, those tax attributes tend to appear on more complicated returns. These returns – as a rule of thumb – are prepared later in the filing season or are extended.

The IRS and Identity Theft

One of the downsides of increased electronic tax filing is increased identity theft. We had one of our e-filings intercepted this year by the IRS for identity mismatch. The IRS did not accept the e-file and instead required a paper return with Form 14039, Identity Theft Affidavit, attached.

I was looking at (OK, I was skimming) a report from the Treasury Inspector General for Tax Administration issued May 3rd. Imagine my surprise to learn that the IRS has no special procedures for our return with Form 14039 attached.

The IRS considers the paper filing to be a duplicate return and does not immediately process it. An employee enters a transaction code into the taxpayer file to memorialize receipt. The return then goes to a separate queue to be worked on, possibly after April 15 when the filing season has ended. The IRS transfers the file to Duplicate function for initial review. If Duplicate considers it an identity theft case, the file is again transferred, quite likely to the Accounts Management function. It is there assigned an assistor, who requests copies of the original tax returns and begins the process, including correspondence, of determining who the legitimate taxpayer is.

This process is slow and the refund can be delayed until late in the year or even the following year. The average case resolution is 414 days.

The assistor very likely works in Accounts Management. The problem is that these employees also answer the toll-free telephone lines during busy season. According to TIGTA, 87% of assistors working identity fraud also answered the phones, and 60% stated that they worked the toll-free line exclusively. TIGTA considers the optimal assistor inventory (that is, caseload) to be 100 to 125 per assistor, but the average assistor had an inventory exceeding 300 cases.

The identity problem is new enough that IRS guidelines are spread out over almost 40 sections in the Internal Revenue Manual. Sometimes the guidelines are inconsistent. The IRS in addition does not have procedures to spot trends which could be useful in detecting or preventing future fraud. One problem, for example, is sending notices to the last address of record, which could just be the person perpetrating the fraud.

Training has also been an issue. TIGTA’s survey showed that almost half of the assistors believed that their training was not sufficient. In one office, 13% of assistors had received no identity theft training.

To be fair, the IRS has agreed with TIGTA’s findings and has begun implementation of many recommendations. For example, there will be specialized units in Accounts Management to work only identity fraud cases.

Then we have Congress. Three representatives this week introduced the “Fighting Fraud Act,” which would double the current penalties for tax preparers who are involved with identity theft. The intent is to give the IRS greater incentive to prosecute this type of theft, presumably because the potential payoff is greater.

Really? This is the best the mandarin class can dream up? Here is an idea: the IRS assigns a PIN to every preparer. Require every professionally-prepared return to require the preparer’s PIN. If a preparer is involved with this type of nonsense, the IRS revokes the PIN and bans the preparer from working before the IRS.

Will this stop the completely unscrupulous? Here is a question in return: in human history, has it ever been possible to stop the completely unscrupulous?

Mandatory FBAR e-Filing Postponed

This is a bit specialized, but if you have a foreign bank account it applies to you.

You may recall that you are required to file Form 90-22.1 “Report of Foreign Bank and Financial Accounts” (more commonly called the “F-Bar”) if you keep over $10,000 in a foreign bank account. It doesn’t have to be a secret Swiss account. A Canadian account will do it, for example. We have clients with Mexican real estate that also have bank accounts requiring FBARs.

You were previously required to file that form electronically starting in 2012. Chances are that meant you were going to use a tax preparer, if you were not using one already.

That electronic filing requirement has been delayed one year – until June 30, 2013.

A Tax CPA Not Filing Taxes

My daughter goes to the University of Tennessee. Perhaps it is because she is in Knoxville that the following story about Edgar H. Gee Jr. caught my eye.

Mr. Gee is a CPA and has (had?) a small accounting firm on the west side of Knoxville off Kingston Pike. He has been at this for a while, as he is going on 40 years of professional experience.  His resume is nothing to snicker at:

·    He has published articles in the Tax Adviser (a professional publication)

·    He has testified before the U.S. House of Representatives Subcommittee on   the Oversight of IRS Activities

·    He is co-author of PPC’s Guide to Worker Classification

·    He is the winner of the Max Block Award by NYSSCPAs for Distinguished Article of the Year 2000

·    He is a past president of the Knoxville Chapter of the Tennessee Society of Certified Public Accountants

·    He was the recipient of the Discussion Leader of the Year award from the Tennessee Society of CPAs in 2001

What did he do?

Well, the IRS Office of Professional Responsibility disbarred him because he did not pay taxes for tax years 1997 through 2005. The OPR said he had engaged in disreputable conduct by willfully evading his taxes for nine years. The amount of taxes, including interest and penalties, was approximately $340,000.

I guess he can continue lecturing, but he is not practicing before the IRS again.

What argument does a tax CPA present when he hasn’t filed taxes for almost a decade? I didn’t know? That kite is just not going to fly.

It’s just sad.

BTW I do not know Mr. Gee, but maybe I’ll run into him sometime. I do hope that he is not teaching tax at UTK.