Ten Things to Consider When Selecting a Tax Pro

From SmartMoney.com is a list of 'Ten Things Your Tax Preparer Won't Tell You'

The first point is a Big Name Won't Necessarily Mean Better Service. This seems rather obvious. In an industry that that hinges on presonal relationships, how can you expect to get qualified guidance and service from a part-time worker in a kiosk at Wal-Mart?

The General Accounting Office found that 'nearly all the returns prepared for us were incorrect to some degree' at the big chain retail tax places. Last year, Jackson Hewitt was accused of cheating the government out of $70 million with fraudulent tax returns mainly using phoney businesses. In the CPA community, the tax outfit in green is known as 'H&R Crock' because it relies almost solely on part-time seasonal labor with only a crash course educational training program.

In coming days a few of the other points will be addressed.

Wanted: Major League Athletes in Need of Tax Services

Lenny Dykstra is being sued. That's no surprise. The circumstances surrounding the suit are surprising. As the New York Daily News reports, Dykstra is being sued by the accounting firm who prepared his 2006 tax returns. The firms claims Dykstra did not pay his bill of $111,000 for the preparation of 2006 tax returns. That's not a typo. That's One-hundred-eleven thousand dollars.

Dykstra naturally assumed the bill was an error and is willing to defend himself in court. "Somebody trying to charge $120,000 for a tax return and can't even file it on time, they've got some problem," he said. "Now they're going to get exposed. My attorney, he said he thought it was a typo when he saw the bill."

The former outfielder said he had numerous meals with his accountants and recalls paying for all of them. "Maybe they charged me for his steak and lobster, too," he said.

That's a lot of steak and lobster, even at Manhattan prices.

So in an offer to all of the professional ballplayers with Bartow County ties: Please contact me if you need any tax preparation assistance. I promise that I'll cap my fees at $80 grand.

The Cobbler's Children Have No Shoes

Jeanette Jamieson hasn't paid her Georgia state income taxes in eight years according to an AJC report.

This might not be so bad except for the following facts:

• She serves in the Georgia House of Representatives
• She serves on the House Ways & Means Committee which writes tax legislation.
• She is an accountant who owns Jamieson Accounting & Tax Services in Toccoa.

She has reached a settlement with the Georgia Department of Revenue to pay $45,734 by March 15th. Her excuse for nonpayment is that her public responsiblities have distracted her from taking proper care.

Maybe she advises her clients in the same manner as the old Steve Martin Saturday Night Live skit:

How to Make a Million Dollars and Not Pay Taxes

"First, make a million dollars. Next, don't pay taxes. Then when the government comes wondering why you haven't paid taxes remember these two words. They are very important. Say, "I Forgot!"

The GREAT Plan; Back from the Dead

I'm not even sure what to make of this at this point. Glenn Richardson in my opinion is the biggest pain in the neck in the state of Georgia. He proposes a tax plan claiming to be revenue neutral to get ri of certain property taxes. The plan looks anything but revenue neutral as proposed and appears to have next to no support. Then it starts looking like the littel engine that could after passing a House subcommittee.

The final statement of the AJC report makes it look like this bill is heading for either a backroom deal or for Richardson to bully his way to passage.

However, Lt. Gov. Casey Cagle, the Senate's president, has for months criticized Richardson's proposal to swap property taxes for charging a sales tax on more goods and services.

Also, the Senate's Republican leadership generally follows Gov. Sonny Perdue's lead on legislation, and he too opposes Richardson's plan.

Stay tuned. Apparently, this isn't going away quietly.

If Your CPA Has a Nickname, Find a New CPA.

Two former partners in a national CPA firm are under investigation for a tax-shelter operation using phony businesses. The greatest part of this article is that one earned the nickname ‘Dr. Poof’ because of his ability to make taxes go ‘Poof!’ Here is the report:

Two area tax advisers used sham companies and nonexistent chicken farms to shelter their clients’ income from hundreds of millions in taxes, government lawyers alleged Thursday.

In separate but related civil suits filed in federal court, the IRS said that Allen R. Davison of Overland Park and A. Blair Stover Jr. of Platte City and Beverly Hills, Calif., sold numerous fraudulent tax-avoidance schemes to wealthy investors. The agency’s lawyers asked a federal judge in Kansas City to permanently bar the men from giving tax advice or representing clients before the IRS.

The complaint cited a press account as stating that Davison’s clients and colleagues referred to him as “Dr. Poof” because of his reputation for making taxes go away.

Both complaints alleged the men helped wealthy clients evade income taxes through elaborate fraud schemes using bogus corporations and Roth individual retirement accounts.

“The amount of tax loss caused by Davison’s promotions is incalculable but likely in the hundreds of millions of dollars,” the complaint against Davison stated.

Neither Davison nor Stover could be reached for comment Thursday. But Stover’s attorney, Mark Thornhill, called the allegations “plain wrong” and said they “appeared to come from a disgruntled former business partner.”

“Moreover,” he said, “these allegations relate to transactions that occurred years ago. We are perplexed.”

So it’s perplexing when the government comes after you for bilking them out of ‘hundreds of thousands of dollars’ if it happened years ago. My favorite part of this is later in the article when it is revealed who the ‘disgruntled former business partner’ is:

Disgruntled former clients facing tax audits also filed suit in Nebraska and California, alleging in one case that they likely owed “millions of dollars” in back taxes and penalties.

Clients who adopt tax avoidance strategies that the IRS later finds improper must pay the taxes owed and penalties, even though they were taking someone else’s advice.

What a great way of looking at things! A tax professional peddles fraudulent tax schemes that fall apart leaving the client on the hook for unpaid taxes, penalties and interest, but that testimony should be discounted because the clients are just ‘disgruntled former partners’!

We also learn that the nickname ‘Dr Poof’ may be unwarranted as client V. Cheryl Womack explains:

“It made a lot of sense for me to have somebody here. And I paid plenty of friggin’ taxes. I never got mine ‘poofed’ away.”

A classy lady indeed!

IRS Tax Preparer Survey

This week I participated in an Internal Revenue Service survey. The IRS has been conducting these random surveys for several years now in the professional tax preparer community. I was asked a few ‘Qualifying Questions’ and apparently passed.

The first segment of questions concerned the volume of tax returns I prepared as well as the type and what percentage of those returns are e-filed. I was then asked about responding to notices clients receive from the IRS. One questioned posed was, ‘Who is to blame for notices concerning non-payment or late payment of tax, the IRS or the taxpayer? Without analysis I went with my gut and blamed the IRS. It probably isn’t accurate, but it is always more fun to blame the government.

To expound a little on taxpayer notices that are received in the mail, oftentimes those are generated by a computer because of a technical match (or mismatch). What I see with more frequency is brokerage firms submitting 1099s for interest, dividends or stock transactions with incorrect information. Certainly that isn’t the IRS’ fault for generating an official notice but it’s hardly the taxpayer’s either.

I do have an anecdote about incorrect notices being issued. This past summer a client received a notice and I immediately called the IRS to get additional information. The IRS’ response was ‘We haven’t actually processed the documents this notice regards. Sometimes those notices are automatically generated before we investigate the corresponding return.’ That one would probably be the IRS’ fault.

The final line of questioning was in regards to accuracy and ethics of paid preparers. The question that sticks out most in my mind was, ‘what percentage of paid preparers would you say knowingly prepare incorrect returns to reduce a client’s tax liability?’ I made the comment that I felt there were some shysters in my town before I gave a percentage. I finally said 50%. I may be low.

In future posts I hope to compile a list of the craziest things I have personally seen professionals do to reduce a taxpayer’s tax liability.

Random Information on the Economic Stimulus Rebate Payments

• IRS will begin sending taxpayers their payments in early May.
• A payment schedule is expected to be announced shortly
• Taxpayers who requested direct deposit for their 2007 federal refund will have their stimulus payment direct deposited.
• The payment amount will be the amount of tax liability on the 2007 tax return up to a maximum of $600 for individuals and $1,200 for joint filers.
• Taxpayers with no tax liability but at least $3,000 of qualifying income will be eligible to receive a payment of $300 for individuals and $600 for joint filers
• Qualifying income includes Social Security benefits, Railroad Retirement benefits, Veterans’ benefits and earned income.
• Dividends, interest and capital gains income is not included when determining qualifying income.
• Many low income people who may not normally be required to file a tax return must file a 2007 return in order to receive a payment.
• Recipients of Social Security, Railroad Retirement benefits and Veterans’ benefits should report the nontaxable amounts on line 14a of Form 1040A or line 20a of Form 1040.
• Taxpayers who have already filed but did not report the amount of benefits received should amend the return by filing Form 1040X.
• The Social Security Administration and Department of Veterans Affairs are working with the IRS to ensure that recipients are aware of this issue.
• Payments to higher income taxpayers will be reduced by 5 percent of the amount of AGI above $75,000 for individuals and $150,000 for joint filers.
• Individuals must have valid Social Security Numbers to qualify for the stimulus payment. Both taxpayers must have a valid Social Security Number for jointly filed returns.
• Children must have valid Social Security Numbers to be eligible as qualifying children.
• Filers who use an Individual taxpayer Identification Number issued by the IRS to file their returns are ineligible
• Individuals who can be claimed as dependents on someone else’s return are ineligible.
• Taxpayers who file Form 1040-NR, 1040-PR or 1040-SS are ineligible
• The IRS will continue to send payments until December 31, 2008.
• Taxpayers that move their residence after they file their 2007 tax return should file a change of address card with the U.S. Postal Service as well as Form 8822 with the IRS.
• Two informational notices will be mailed by the IRS advising taxpayers of the stimulus payments.
• The IRS will not call or send e-mails about the stimulus nor will it ask for financial information.
• Taxpayers who receive calls or e-mails seeking financial information should notify the IRS at phishing@irs.gov.
• Stimulus payments will be subject to offset against outstanding tax and non-tax liabilities similar to tax refunds.
• Stimulus payments will not negatively impact any income-based government benefits, such as Social Security benefits, food stamps and other programs.
• Stimulus payments will not be taxable.

Busiest Tax Season Ever

If your CPA or tax professional seems on edge right about it may be with good reason. The IRS announced recently that it expects anywhere from 10 to 20 million more returns to be filed this year then ever before. The main reason for this anticipated is the Economic Stimulus Rebates.

The act bases all rebates on returns filed for tax year 2007. Even people whose income in the past was such that a return was not required to be filed may be eligible for the rebate. However, in order to receive that rebate these people will need to go ahead and file. This would include people who receive Social Security benefits, Railroad Retirement benefits and Veterans’ benefits.

One of the national retail tax establishments is already trying to tap into this market by offering to file for these people for a flat rate of $35 which would then qualify the individual(s) for the rebate.

Fair Tax Rhetoric

I’ve written before about the Fair Tax, not because I oppose it but because some of the arguments offered by proponents are without basis. As Mike Huckabee’s bid for the White House draws to a conclusion, I feel the need to address one of his selling points in particular.

In campaign stops all over America, Huckabee touts the possibility that the IRS will be put out of business of the Fair Tax is established. The crowds react wildly. After all, who in this land likes the Internal Revenue Service?

But is it realistic to expect the IRS to wither away with the replacement of the income tax by a consumption tax? Remember, the IRS doesn’t create tax laws. It only enforces compliance. Certainly calculating taxes will be simpler but will enforcement be simpler?

One argument always made in favor of the Fair Tax is that it eliminates the ‘underground economy’. That is, people that are here illegally or are engaged in illegal activities will have to pay the tax just like the law abiding taxpayers. Even business owners who hire labor but don’t properly report the payments on either a W-2 or 1099 with the appropriate withholdings will now have to pay taxes as will the recipients of this ‘tax-free money’. But is this a reasonable expectation?

If it is so easy for employers to avoid proper payroll tax, why wouldn’t it be just as easy for business owners to avoid paying the fair tax? Suppose a local retailer sold goods and services subject to the national sales tax. When strangers came and shopped, those consumers were charged the appropriate amounts under law. Then when the storekeeper’s friends and family shopped, no sales tax was applied. Even worse, suppose business owners actually collect the proper amount but falsify the financial records in order to submit a lesser amount. How do the Huckabees of the world suppose the Fair Tax will operate without a tax gap? Or do supporters expect us to believe that taxpayers will be so relieved that the IRS no longer exists that everyone will freely collect and submit what they properly owe?

It simply is not true that the Fair Tax will eliminate the need for government enforcement. And if it isn’t true then it shouldn’t be said be people such as Huckabee.

There’s a Tax Scam for Everything

Wow! That didn’t take long. This alert comes from the office of the Attorney General of Texas.

ALERT
Scammers Taking Advantage of New Federal Economic Stimulus Package

Texans should be aware of a scam that has emerged in connection with the proposed federal economic stimulus package. Under recently passed legislation, the IRS will mail tax rebate checks to eligible Texans over the next few months. President Bush has indicated he will sign the package into law on Wednesday.

Several Texans recently filed complaints with the Office of the Attorney General after receiving unsolicited e-mails and telephone calls from purported IRS agents claiming that the taxpayers are eligible for “Bush refunds.” The scammers demand taxpayers’ Social Security and bank account numbers, claiming the IRS will use the information to directly deposit “rebate checks” into the taxpayers’ accounts.

This is outright identity theft fraud. The IRS does not call or e-mail taxpayers unexpectedly to demand personal information for direct deposits. Taxpayers solicited in this manner should just hang up or delete the e-mail.

Texans who have received these bogus solicitations can file a complaint with the IRS at www.irs.gov or by calling (800) 829-1040. Consumers also can report such calls to our office.

Sincerely,

Greg Abbott
Attorney General of Texas

I love how the scammers refer to the stimulus rebates as ‘Bush refunds’. It appears that even scammers want to blame Bush for something. Also, I’m glad to see that Greg Abbott is still around doing something although do you really want your state’s Attorney General’s name to be associated with a song entitled ‘Shake You Down’.

I’ll keep you posted if (when) this garbage makes its way to Georgia.

Is it still a hobby if you don’t have any fun?

From the glutton for punishment category of the US Tax Court – An Indiana man decided he was on his way to a lucrative career selling health care products for a network marketing company. He was convinced to give it a try from a couple he met at a health club. This was his first attempt at network marketing or retail sales.

Like any other multi-level marketing company, sales of the actual product are incidental to the more lucrative goal of sponsoring other people. He would then be able to earn commissions on those people’s sales. Of course, if they take the approach that sales are only incidental I’m not sure how much a commission check would actually be.

However, a funny thing happened on the way to the top of the pyramid. From the time he became involved with the company the only thing he sold was to family members. The only people he sponsored were also family members. He was able to enlist his brother and his son. Of course, the only reason they became distributors were for the discounts on the health products. In fact, his son must have only placed a single order for the discount. His son quit the sales force in the same year he joined.

In addition to his attempt to make a fortune selling health care products, the taxpayer maintained a full-time job….80 miles from his home. He commuted 80 miles each way to his main job. On some days, he would stop at parking lots along his route and place business card on windshields of cars. These business cards offered ‘The Opportunity of a Lifetime’ while listing the taxpayer’s phone number. However, the name of the company was never mentioned. The taxpayer never received a phone call from any of these business cards, which must have come as quite a shock to everyone.

Three years after becoming involved with the product, the taxpayer began sending out direct mail information. The materials he sent told recipients that he had been using the products for many months and that they had reduced the symptoms of various chronic illnesses and contributed to his ‘overall good health’. Each week, the taxpayer would collect names and addresses of 48 women in his surrounding area and send them a postcard. He would then send a second and third postcard. After that he would attempt to call these women. He would occasionally talk to a few of them for 15 or 20 minutes making his sales pitch. On the rarest of occasions, he would meet with some women personally to deliver product materials. All of this occurred while operating out of his local library. From all indication these efforts resulted in no sales.

As you can guess the taxpayer’s efforts weren’t very profitable. From 1997 to 2003, the taxpayer lost money in every year ranging from a $2,600 to $11,700 in losses. Those familiar with tax rules know where this story is going to end. The Tax Court ruled that the taxpayer did not comply with the ‘hobby loss’ rules adding that in nearly 10 years the company had no profits, minimal amount of activity and the only customers were relatives. The ruling disallowed the deduction for all of the taxpayer’s losses.

I guess he should have asked customers to 'Honk for Fonk'!