Registered Tax Return Preparers or a CPA: License to Thrive

This past Friday, January 18, independent tax return preparers were given a favorable ruling over the seemingly insurmountable Internal Revenue Service by a Federal District Court judge. He sided with the preparers that the IRS was not given authority by Congress to license tax return preparers, and by extension require them to be tested and attend continuing professional education (CPE) seminars or classes. Hooray for the tax return preparers?

In a way, yes. Those who have worked hard and choose to prepare taxes for extra income during the early part of every year, some even for 20, 30, or more years, were being targeted by the IRS in order to bring them under compliance while trying to eliminate fraudulent practices, returns, and refunds. I can see the Service’s position, in that reports of fraud and fraudulent returns have almost tripled since 2009 alone, according to this report from the Treasury Inspector General for Tax Administration. By some estimates close to $5 Billion per year is lost due to fraud. However, many preparers have already taken their 15 hours of CPE and passed the IRS-approved exam in order to have the Registered Tax Return Preparer (RTRP) credential. They spent their money and time to earn the credential, which due to this ruling now seems irrelevant. The ruling does not affect Tax Attorneys, Enrolled Agents, or Certified Public Accountants (like me, The Mobile CPA).

What is the difference between a Tax Return Preparer and the others? A Preparer cannot practice, or represent, a taxpayer or client before the IRS. Only licensed professionals may represent their clients, because we are subject to the guidelines of Circular 230. They also cannot provide tax advice beyond the scope of the return they are preparing. So, what is the solution? Well, in order to obtain my CPA license, I was required by the Pennsylvania State Board of Accountancy to earn 120 credits (now 150) at an accredited college, as well as gain experience of at least 3,200 hours under a CPA with various hours for Auditing, Taxes, Tax Research, Accounting, and other areas. All this in addition to passing the four parts of the exam, which each has about a 45% pass rate. I believe as many others do, that the solution lies with the State Boards of Accountancy to license RTRPs, and in turn will provide taxpayers with more confidence in their chosen Preparer as well as reduce fraud.

If you take your tax information to a kiosk in your local supermarket or mall, you might not be getting qualified advice or preparation. Not all of them are bad apples, but the person behind the desk usually does not have their personal assets or reputation on the line if they do not perform to the best of their ability with every client. My advice, as if you didn’t guess, is to have your return prepared by a Certified Public Accountant this year. Many times we’re far less expensive than the kiosk, where you’ll probably wait in line while the guy next to you eyes your social security number.

2013: A Tax-Paying Oddity

The “Fiscal Cliff” was narrowly averted, as the last act of the 112^th Congress was to approve a modern day HAL 9000, the American Taxpayer Relief Act of 2012. While it does not actually provide much relief, the 157 page House Resolution 8 (as amended by the Senate) does include a “patch” for the Alternative Minimum Tax, or AMT. Without this patch, 60 million taxpayers making $33,750 (single) and $45,000 (married filing joint) per year or more would have been subject to a massive tax hike. The new exemption amounts of $50,600 S/$78,750 MFJ create a haven for many, but if you reside in an area where the median income is higher than that, you can count on the AMT affecting you. Congress kicked the proverbial can down the road on this one for more than ten years now, as a new patch was needed each year because it was never indexed for inflation. That problem has now been fixed, as HR 8 also includes a permanent index for inflation. There is some discussion regarding elimination of the AMT as the 113^th Congress will more than likely attempt to tackle tax reform.

Every person will pay more in taxes for Social Security beginning this year as HR 8 does not extend the 2% reduction we have enjoyed since 2010. This means you will pay $1,000 more per year for every $50,000 of income, up to the $113,700 base. The Estate and Gift Tax Rate is set at a high 40% (with a $5 million exclusion), but considering the alternative 55% if the Act wasn’t passed, it’s a relief. Among many other provisions, the top capital gains rate is raised from 15% to 20% on those with incomes of $400,000 single/$425,000 head of household/$450,000 married filing joint. Everyone from there down to $72,500 MFJ/$36,750 S will stay at 15% maximum, and those below that keep their ZERO rate. It’s pretty sweet if you don’t make much money, but generally most singles making under $36K do not have much invested to produce major capital gains.

The American Taxpayer Relief Act of 2012 will certainly take some time to digest, as the IRS updates its software, publications, and forms to comply. There also still remains the possibility of delayed tax filing for many taxpayers until mid-February, as what happened in 2011. In all, the legislation is typical in that it has its good and bad points which will be meted out in the near future. Discuss your financial position with a Certified Public Accountant today, and identify any malfunctions and upgrades you should make.