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OCTOBER 2014


OBAMACARE – GOOD CONCEPT BUT BAD LEGISLATION


The basic concept of Obamacare is a good and valid one – attempting universal health insurance coverage for all Americans without having to resort to UK-like “socialized medicine”. 


Having the government provide lower-income Americans with financial assistance in acquiring adequate family health insurance coverage, or encouraging businesses to provide group health insurance coverage to employees, via direct to provider premium payments is a good idea.


However, for solely political reasons, the Democratic Party wanted a victory for President Obama early in his first term and rushed through poorly conceived legislation that turned out to be a total mess, instead of allowing for sufficient time to properly think through the correct and efficient application of the concept.


The Affordable Care Act is truly a complex and convoluted mucking fess.  It is a bad Act not because its basic concept is bad, or because it is too “liberal”, but because, like much of the legislation enacted by the idiots in Congress, it is poorly conceived and badly written.


The Affordable Care Act is also proof positive that the idiots in Congress, of both Parties, do not actually read the legislation they vote on.  It may not necessarily be that they are totally incapable of independent thought – but they certainly do not exercise any independent thought, and just vote the way they are told to by their Party leaders, regardless of the validity of that on which they are voting.


One of the most obvious errors with the ACA is that its administration and enforcement should not be routed through the Tax Code.  Once again tax preparers are forced to become Social Workers.  The ACA creates much more work for the tax preparer that is totally unrelated to the calculation of net taxable income and proper tax liability, and as a result increases the cost to the public of tax preparation services. 


Those individuals whose household members are not “properly” covered by health insurance for the entire year 2014 may be subject to a penalty.  The calculation of the penalty is not an easy one - it involves three levels of calculations – and can be expensive.  If a person uses a paid preparer he/she is actually paying money out-of-pocket to calculate the penalty!  Insult + injury!


To determine if a client is subject to a penalty, and to calculate the penalty, the tax preparer must have all of the income and health insurance information for all dependent household members.  The regulations create a new series of information returns – 1095-A, 1095-B, and 1095-C, which clients must remember to save and give to their providers (the required issuance of the B and C components has been pushed back to tax year 2015). 


It is hard enough at times trying to get a taxpayer to provide all the information necessary to properly prepare the return – and now we must gather additional information from the client, much of which has absolutely nothing to do with the preparation of the actual tax return.


A less offensive Obamacare-related job that is now thrust upon the tax preparer concerns determining the proper premium tax credit.  This will include reconciling any advance premium credit paid directly to insurance providers, which was based on anticipated 2014 income, to the actual premium credit to which a client is entitled based on actual 2014 income from the Form 1040 (or 1040A).

 

One of the basic purposes of Obamacare is to help lower-income individuals who are not covered at work, and who otherwise could not afford to purchase health insurance directly, or for whom the cost of ACA-compliant coverage would be excessive, by providing assistance in the form of the premium tax credit, which can be received in “advance” via a direct payment to the insurance provider.

 

2014 is the first year that this premium credit it available.  However its application for 2014 is grossly unfair.  Under current regulations, only those individuals who purchased health insurance coverage through the ACA Marketplace will be able to take advantage of the credit – regardless of their level of income.  We all remember what a mess the Marketplace website was when unveiled last October.


An example -

 

My income for the year for purposes of calculating the premium credit is $20,000.  I was patient, persevered and was eventually able to acquire insurance coverage via the ACA Marketplace, and received a substantial advance premium to reduce the monthly amount of my “out of pocket” premium payment.


Your applicable income for the year is also $20,000.  You were not as patient and persistent as I was and gave up after a few attempts to access the ACA Marketplace website.  You contacted Blue Cross directly and purchased insurance coverage that was ACA-compliant (the same coverage as I acquired through the Marketplace).  Because you did not go through the ACA Marketplace you did not receive an advance premium.


Your out-of pocket for the year for health insurance was $7000.  My out of pocket for the year for health insurance was $2,000.  When I file my 1040 I reconcile the advance credit based on estimated income to the credit allowed based on actual 1040 income and come out even.  When you file your 1040 you cannot claim any premium tax credit at all because you did not acquire the insurance via the Marketplace. 

 

Even though based on your income you should be eligible for substantial government assistance in paying your health insurance premiums, you are basically screwed, and $5,000 more out of pocket then you really should be.

 

I have been told there has been talk of fixing this gross inequity – but nothing has been done yet.

 

And there appears to be another inequity in the application of Obamacare.  The instructor of a CPE session on the provisions of the Affordable Care Act for individuals suggested that health insurance premiums acquired through the ACA Marketplace are slightly more expensive than premiums for the exact same coverage acquired independently directly from Blue Cross and other providers.

 

SPEAKING OF OBAMACARE - DRAFT FORMS AND REVENUE PROCEDURES

 

The Internal Revenue Service has issued the following draft versions of 2014 tax forms and Revenue Procedures related to provisions of the Affordable Care Act:

 

Form 1095-A - draft form for the Health Insurance Marketplace Statement.  .


Form 1095-B - draft version of the Health Coverage Form. 


Form 1095-C - draft form for Employer-Provided Health Insurance Offer and Coverage. 

 

Form 1094-B - the draft form for Transmittal of Health Coverage Information Returns.

 

Form 1094-C - a draft version of the Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns.

 

Forms 1095-C and 1095-C are not required to be issued until tax year 2015, although many insurance providers may be issuing Form 1095-B for 2014.

 

Form 8941 - draft form for the Credit for Small Employer Health Insurance Premiums.  


Form 8962 - draft version of the Premium Tax Credit form (reconcile advance premium credit payments received during the year to actual premium credit allowed).  


Form 8965 - draft version of the Health Coverage Exemptions form (report exemptions from insurance coverage requirements)

 

Revenue Procedure 2014-37  


Revenue Procedure 2014-41 

 
Revenue Procedure 2014-46 

 
Notice 2014-42 

 

2014 Form 1040 – draft version of US Individual Income Tax Return.  It includes the following additions for ACA related items:

 

• Line 46: Excess advance premium tax credit repayment (from Form 8962).

 

• Line 61: Health care: individual responsibility (to report whether taxpayer has the minimum essential coverage).

 

• Line 69: Net premium tax credit (again from Form 8962) 

 

WE NEED A VOICE IN WASHINGTON

 

The increased workload thrust upon tax preparers related to Obamacare is just one more reason why our industry needs a lobby.

 

The idiots in Congress and the IRS, in response to what is enacted by the idiots in Congress, are continually adding often unrelated requirements to the workload, and ultimate agita, of the tax preparer, most of which have to do with the erroneous policy of delivering, and administering and enforcing, social welfare and other government benefits through the 1040. 

 

And the IRS is moving toward effecting more control over the tax preparer, which was made evident by its attempt to “license” all paid preparers via the now dead mandatory RTRP program

 

I first discussed this issue in my TAXPRO TODAY editorial “Who Speaks for the Tax Preparer?”.  In the editorial I said –

 

While the IRS, if not the Congress, does, from time to time, consult with its ‘stakeholders’ on tax preparation issues, this is merely a ‘professional courtesy’ and, I expect, does not carry much weight in the final decision-making process. The various tax preparer membership organizations do make sincere attempts to represent the paid preparer in Washington, but the different organizations may have differing agendas, and no one organization has sufficient membership to provide the proper ‘weight’ to any kind of serious and effective lobbying efforts.

 

At last count there were 690,000 PTIN-holders, but the largest of the tax return preparer professional organizations, the above-referenced NATP, has only about 25,000 members.”

 

Creating a separate membership lobbying organization from scratch would be a huge and daunting task.  But let me suggest another way.

 

NATP, NSTP, NSA, NAEA, LTPA, and any other legitimate non-profit tax preparer membership organizations need to join together in a “Tax Preparer Advocacy Council” with an office in Washington DC.  I hesitate to include AICPA because that organization certainly has its own agenda, and it is often contrary to the interests of the independent individual tax preparer and the “non-certified” accountant.  NATP, NSTP, and LTRPA all have tax-preparing CPA members.

 

The Council’s job would be to aggressively represent the interests of tax professionals before Congress and the IRS.  It would speak for the tax preparer community with a united voice, and lobby against tax legislation provisions and IRS regulations that put unnecessary burdens on tax preparers.

 

As I said in my original editorial –

 

“. . . this organization could have perhaps gone to the IRS and said that if the new due diligence requirements are put into place its 600,000+ members will refuse to prepare tax returns that include an EITC, or just simply say that its membership strongly opposes the new requirement. The organization could have then worked with the IRS to negotiate regulations that would be acceptable to both the government and the preparer.”

 

Personally I would choose the first option.

 

And –

 

“. . .  this organization could campaign against the continued $63 PTIN renewal fee, which is no longer necessary due to the death of the RTRP mandatory regulation regime.”

 

When new tax legislation is being presented the Council would lobby against any provisions that would create excess complexity and agita for tax preparers.

 

And it could be a voice to advocate for tax reform to fix the mucking fess that is the current US Tax Code.

 

There might even be state “chapters” to do the same thing for state and local income tax law and regulation.

 

I emailed the various tax preparer membership organizations I mentioned above to ask what they thought of this proposal.  As of this writing the only response I received was from Kathy Stanek, CEO of NATP –

 

Thank you for including us in your proposal to create a Tax Preparer Advocacy Council.

 

As you know, NATP has a very diverse membership. We cannot represent one group without representing another group. Hence the reason by NATP does not lobby. Another reason we do not lobby is because our membership can fully deduct their dues. Lobbying impacts the amount of money our members would be able to deduct.


As you know, we are not a DC based association. The cost for us to participate is simply prohibitive.

 

Again, we certainly appreciate your invitation but must decline the opportunity.”

 

I am a little confused by a part of Kathy’s response.  The “group” that needs representing is the “Tax Professional”.  NATP is the National Association of Tax Professionals”.   

 

So what do you think?  

 

THAT’S RIDICULOUS!

 

For a short time back in the early 1980s American broadcast television was fascinated with a much less offensive and dangerous form of “reality tv”.  These shows were a combination of “Ripley’s Believe It Or Not” and “You Asked For It”.  Unlike today’s excrement they did not highlight the outrageous behavior of the self-absorbed brain-dead, or publicly embarrass and humiliate participants.  And, again unlike today, they actually possessed some entertainment and information value.  The most popular of these reality shows was titled “That’s Incredible!”. 

 

If I may be allowed to revise the title a bit, I would like to discuss something that would appear on a show called “That’s Ridiculous!”.

 

The powers that be seem to feel that unless tax preparers are forced to sit through at least 2 hours of redundant ethics preaching each and every year they will suddenly begin to create large fictional employee business expense deductions for clients, or add erroneous dependents, and false EIC claims, to client 1040s.

 

I have been preparing 1040s for over 40 years.  If I ain’t “ethical” by now, having 2 hours of preaching thrust upon me isn’t going to miraculously make me honest.

 

In reality tax preparers are often forced to waste time and money on 4 to 6 hours of sermons each year, as CPE providers seem to feel that they must include 2 hours of ethics in almost every offering.  I was told by a provider a few years back that if 2 hours of ethics were not offered attendance would drop.

 

Perhaps 2 hours of ethics in the first year of required CPE, with a 1 hour “update” at most every other year would be a better requirement.

 

CPE providers should provide two options, and two prices, for full-day offerings – 6 hours of true continuing professional education without ethics or 8 hours of CPE including ethics, which would be the last topic of the day.

 

But the general topic of ethics is not what I want to discuss as “That’s Ridiculous!”.  I want to address a specific component of the ethics sermon. 

 

Tis a puzzlement why the fact that a person is a client must be treated as a “state secret”.

 

Say I was talking to a friend, let’s call him Jim, who is also a client, in a public place and another client, let’s call him Joe, who my friend coincidently also knows, happened along, saying hello to us in passing.  If Jim asked me, “How do you know Joe,” I would normally think nothing of replying, “I have been doing his taxes for years”.

 

But by doing so, I am told, I would be seriously violating so-called “privacy” rules!

 

As long as I do not reveal personal and confidential financial or tax information about Joe to Jim, and vice versa, which I would not do, who gives an airborne sex act if I happen to tell Jim that Joe is a client, and again vice versa?  Unless Joe specifically asks me not to tell Jim, I am certainly going to say, “I have been doing his taxes for years”, regardless of that I am told in ethics class.  

 

Obviously the context of the question and the person asking it is an important factor

 

If a friend or fellow client asks the question in casual conversation I do not see a problem.  If a stranger comes up to me out of the blue and asks if and how I know a client I will say, “None of your business”.  And if a stranger, to me, or only a casual acquaintance, comes up to the two of us and asks how we know each other I will let the client with me respond first and take my lead from him/her.

 

As “professionals” we (well not me anymore) have “waiting rooms”, which are often crowded during the tax season.  We do not segregate individual clients in individual waiting “cells’ so they do not see each other, or ask them to wear masks while sitting in the waiting room.  Often in the past I had a client enter my waiting area and be surprised to see a friend or co-worker sitting there.  Nobody ever ran out of the office in fear because they were seen there.  

 

It is different with a doctor, whose specialty may “betray” personal medical information that the client does not want known.  And perhaps, for the same reason, with certain lawyers, such as a divorce attorney.  But there is nothing revealing in the mere fact that a person uses a professional to prepare his/her tax return, other than the intelligence of the person.  

 

Over the years I have done many members of a local Police Department.  If a police client was in to have his return prepared I would have no problem stating, “Joe {a fellow police officer} was in yesterday”.  And when I lost touch with a long-time police client I had no issue saying to another police client, “I haven’t heard from Jack in a few years now.  Do you know if he is ok?”. 

 

The issue of privacy applies to what the client tells us about their personal finances, and not the fact that they are clients.

 

So, once again I ask – what do you think?

 

YEAR-END TAX UPDATE SEMINARS

 

It’s that time of year again when tax professionals sign-up for year-end update classes in preparation for next year’s tax filing season.  Here are some options –

 

The grand-daddy of year-end updates has to be National Association of Tax Professional’s “The Essential 1040®” (formally “The Famous 1040 Workshop”), which has been around for 29 years now.  This course covers the standard inflation-indexed updates for 2014 tax returns, new tax laws applicable to 2014, court cases, and recent developments. The day, of course, includes the obligatory two hours of redundant ethics preaching.   

 

It is offered in combination with “Beyond the 1040®” in several locations in each of the 50 states.

 

“Beyond the 1040®” is a full day discussion of topics that were hand-picked by NATP’s Tax Research department –

 

•Tax Ramifications of Divorce

•Foreign Investment Reporting Requirements

•Estimated Tax Payments and Underpayment Penalties

•Substantiation of Deductions and the Cohan Rule


NATP also offers the 3-day TAXPRO Symposium.


Day 1 is “Working with the IRS”, an interactive workshop that promotes the discussion of personal experiences and the outcomes of IRS audits to provide attendees with confidence when dealing with the IRS and a list of action items to discuss with your clients.  It will -


• explain the three types of IRS audits and techniques for handling each type so your clients understand what they might face in an audit;

 

• explain the first steps to responding to an IRS examination or audit;

 

• identify the potential penalties a tax professional and taxpayer can be subject to;


• describe the options available to a taxpayer who disagrees with the findings of an IRS examination or audit; and


• follow best practices to assist delinquent taxpayers in satisfying their tax obligations.

 

Days 2 and 3 are “The Essential 1040®” and “Beyond the 1040®”.

 

The symposium is being offered in -

 

Scottsdale, AZ on November 3-5, 2014

Lakewood, CO on November 10 - 12, 2014

Orlando, FL on December 8 - 10, 2014

Bloomington, MN on October 20 - 22, 2014

Las Vegas, NV on November 10 - 12, 2014

Atlantic City, NJ on November 17 - 19, 2014

 

The individual state chapters of NATP also offer year-end state tax updates.  Click here to access information for the chapter for your state of residence or practice.

 

{If you are not a member of NATP and would like to receive membership information please email me at [email protected] with “NATP Membership” in the “subject line”.}

 

The National Society of Accountants is offering the “Gear Up Individual Tax Seminar” at the Mohegan Sun Casino in Uncasville CT on November 20-21, 2014.  Topics include coverage of new legislation and extenders, revenue rulings and procedures, as well as case law to help the busy practitioner keep current.  

 

And the National Society of Tax Professionals also has its 1½ day “2014 Federal Tax Update Seminar” cheduled at various locations in 29 states, with a full day of updates and 2-hours each of Schedule C topics and, what else, ethics. 

 

Like NATP, NSTP has been offering year-end update classes for decades, and I have attended them often in the past.  The instructors and materials for the seminars I took were always top notch.

 

In my new home state of PA the Pennsylvania Society of Tax & Accounting Professionals   (I believe it is affiliated with NSA) also offers Gear-Up and Jennings federal year-end update workshops and PA state and local updates at various locations throughout the large state.  I have not yet joined, but am thinking about it.

 

Here are some other year-end update providers -

 

Accountant's Education Services

 

Basics and Beyond Income tax Seminars

 

Katz Tax Seminars (New York only) 

 

Spidell Tax Seminars (California only)


I have absolutely no experience with these 4 CPE providers and cannot offer any recommendation either way.  I only learned of them via a Google search, although I had heard of AES and Spidell before.

 

In most cases the above seminars are taught by practicing tax professionals, who often add real-life examples and suggestions from their individual practices to the presentations.  I know this is true of NATP and NSTP classes.

 

While the year-end offerings discussed above all provide qualifying CPE, none of them include the IRS-specific 3 or 6 hour “refresher course” required under the Service’s new voluntary Annual Filing Season Program, nor do they include any testing.

 

Perhaps I will see you at the NATP Tax Symposium in Atlantic City.


TAXPRO BUZZ


+ An email from Thomson Reuters told me about a new whitepaper available that shares five ways to be a better tax researcher.

 

+ Jason Dinesen adds his more than 2 cents to a discussion I began in “What Is Our Legal Responsibility” in the September issue of THE TAX PROFESSIONAL in his blog post “What Responsibilities Do Tax Preparers Have in Assessing ACA Penalties?”.

 

I thank Jason for his contribution to the discussion, and look forward to hearing what other tax pros have to say.

 

+ I recently became aware of the “Smart Center Blog”, which suggests that it will help you learn “How to Build the Ultimate Modern Tax Firm” and provide “Real answers you need to have a next level tax business”.

 

+ Jeff Stimpson talks about “Sack Race: Firing Clients Before Next Season” at TAXPRO TODAY.

 

He hears from tax pros on the question “Before next tax season begins, how can you pinpoint and fire your worst clients?

 

+ And Jeff also tells us “IRS to Send EITC Due Diligence Warnings” to preparers who appear not to be complying with due-diligence requirements in October.   

 

The item explains one of the reasons that the EITC does not belong in the Tax Code.

 

The IRS estimates that from 22 percent to 26 percent of all EITC claims contain ‘some type of mistake’ that altogether cost the government a total of $13.3 billion to $15.6 billion in 2013.”

 

+ This announcement came via the NJ-NATP restricted Spacebook group –

 

Join Karen L. Hawkins, Director of the IRS Office of Professional Responsibility (OPR), on October 29th for a free webinar on recent changes to Treasury Department Circular No. 230, Rules Governing Practice before the Internal Revenue Service!

 

Title: Practicing Before the IRS - Circular 230 A to Z

Time: 2:00 p.m. (ET); 1:00 p.m. (CT); 12:00 p.m. (MT); 11:00 a.m. (PT)

Contact: SB/SE Webinars

Email: [email protected]

Event Information: This FREE 2 1/2-hour broadcast is for all tax professionals.

 

Topics include:

 

1 . Recent changes to the regulations governing tax practice before the IRS 

2 Due diligence obligations of tax professionals.

3. Overview of other key Circular 230 provisions.

4. Practitioner responsibilities to their clients and to the tax administration system.

5. Best Practices for all tax professionals.

6. OPR Policies and Procedures

7. Live Q&A session with Karen L. Hawkins, Director of OPR

 

Certificates of completion are being offered. Earn 2 CE credits: 1 CE Credit = Ethics and 1 CE Credit = Federal Tax.

 

To register for the event, visit the Internal Revenue Service Webinar Registration website.  Click here 

 

+ Speaking of NJ-NATP, the Fall 2014 issue of NJ TAXING TIMES, the newsletter of the NJ chapter of NATP, is available to download!  Click here.

 

Lots of good “stuff” in this issue.  I have written a couple of items.

 

TAX PRO PRACTICE TIPS

 

Here is what I do when it comes to multiple W-2s on a client’s tax return.

 

First I separate the various copies into three piles – “B” for Uncle Sam, “2” for the state return, and “C” for the client.

 

I run an adding machine tape of federal “Wages, tips and other compensation” (Box 1) and “Federal income tax withheld” (Box 2) and staple it to the “B”s.

 

I run a tape of “State wages, tips, etc” (Box 16) and “State income tax” (Box 17) and staple it to the “2”s.

 

I run a tape of Boxes 1, 2, 16, 17, and any SUI. SDI, and FLI included in Box 14 and attach it to the “C”s.

 

If there are multiple states or excess Social Security tax I do some additional additions on the appropriate tape

 

I compare the totals on the tapes for the “B”s and “2”s to the totals on the tape for the “C”s to make sure they are the same. 

 

I enter the totals for Box 14 SUI, SDI, and FLI, adjusted for any amounts in excess of the maximum, on Line 8 (“Other taxes”) of Schedule A (if itemizing), identifying the amount as SUI and/or SDI and/or FLI as applicable.  I chose not to include this amount in “State and local Income taxes” claimed on Line 5 (box “a”).

 

I prepare all my federal 1040s manually – but if I did use flawed and expensive tax preparation software I would do this procedure and as an additional check compare the totals on the tapes to the appropriate numbers on the computer-generated 1040 and state return.

 

If you have a tax practice tip you would like to share with your fellow tax professionals email me at [email protected] with “Tax Pro Practice Tip” in the “subject line”.

 

TALK TO YOU NEXT MONTH!