THE TAX ATTIC with Jerry Coon

Jerry Coon

Refining old, proposing new

Welcome to the 2012 tax season! For tax professionals, this is a day that was on the horizon as soon as the previous tax season ended on April 15, 2011. There weren’t a lot of changes that Congress made last year. Furthermore, this is an election year so there most likely won’t be many moves by Congress this year before the November election.

The party to the left—affectionately called by its supporters, the Democrats—won’t let the party on the right—affectionately called by its supporters, the Republicans—pass any law that might be perceived as giving them an advantage with the voters. By the same token, the party on the right won’t let the party on the left pass any law that might be perceived as giving them an advantage with the voters. That means common sense is thrown out the window in favor of trying to get elected or, what seems to be important, trying to make sure the other party doesn’t get elected.

Somehow, I think George Washington, John Adams, Thomas Jefferson, and the other founding fathers would not be amused. I can’t believe they would conclude that they fought and won a war of independence and then came together to agree on one of the greatest documents in the history of mankind, our Constitution, to see the debacle going on in Washington, D.C. today. In fact, I think they would be mortified. It’s not that Washington, Adams, Jefferson and the others weren’t passionate about our country and passionate in their beliefs about how the government should operate. They were strong personalities, so there were strong disagreements. They were, however, able to put the country first and work out their differences for the good of the country.

Shame on you, Barack Obama, Joe Biden, Harry Reid, Nancy Pelosi, John Boehner, Mitch McConnell, and most of the remaining members of Congress, for not putting the country before the party. What may be even worse, shame on us for electing these people for term after term. For the most part, either the people in Washington need to change how they do business or we need to find some new people who will act as Americans and not as Democrats or Republicans.

Well, I guess I should get off my high horse now and talk about the things that Roger Allen would like me to talk about: the world of taxes.

Just because there is a stalemate in Congress doesn’t mean that the Internal Revenue Service took the summer off. Quite the contrary, they have been working overtime refining old rules and proposing new rules.

We all must understand that the IRS is in a tough spot. They are charged with enforcing some very complicated tax provisions. If they are overzealous in that enforcement, they get in trouble. If they are lax in enforcing the laws, they get in trouble. Talk about walking a fine line.

One way they regulate the tax system is by regulating tax professionals. Anyone preparing tax returns for compensation today has to register with the IRS and receive a Preparer Tax Identification Number (PTIN). By registering, the IRS is compiling a complete database of tax professionals. Once the registration process is complete, they will be in a position to effectively monitor and regulate the entire database. Through May 2011, there were 751,493 preparer numbers in the database and the number is growing.

Unfortunately, the IRS is finding that some unsavory characters were given PTINs and are evidently preparing tax returns. According to a report recently released by the IRS, 962 prisoners or ex-convicts were granted PTINs; 43 of those prisoners were currently serving life sentences.

When applying for a PTIN, the question is asked if the applicant has a conviction in the last 10 years. If you were in prison for something that happened more than 10 years ago, you could legitimately answer no to that question. Perhaps the IRS might consider either adding another question to the application process, indicating whether or not the applicant is currently in prison, or they could do a background check on the applicant at the time of the application. Either method might ferret out those bad apples.

Prior to the advent of the PTIN process, there was no complete database. The partial one they had consisted mainly of credentialed professionals: CPAs, attorneys, and Enrolled Agents. These credentialed professionals have always been regulated through an IRS publication called Circular 230. Other non-credentialed preparers were not entirely known to the IRS and were not subject to Circular 230. Now the entire database of those preparing tax returns will be regulated by Circular 230.

I’m an Enrolled Agent, while all of my preparation staff have PTINs. Circular 230 now applies to all of us. I agree with this program. If someone is going to take money to prepare someone else’s tax return, they should be not only known to the IRS but also regulated by the IRS.

In addition, the IRS has created a new designation for tax professionals called a Registered Tax Return Preparer (RTRP). RTRP status is obtained by passing a required test. Anyone preparing tax returns who is not a CPA, attorney, or Enrolled Agent must pass the RTRP test by December 31, 2013, or that person won’t be able to prepare returns beginning on January 1, 2014. Once the preparer passes the test, he or she will be able to market himself or herself using the RTRP designation.

In the future, you will read more about the RTRP designation. I will keep you posted.

Why is regulating the tax professional industry important? In 2011, 66.9 million people paid a tax professional to prepare their return. More than one-half of all returns filed are completed by a paid tax professional. It’s important to know who these tax professionals are and to regulate them appropriately. This is Jerry Coon signing off.

Jerry Coon is an Enrolled Agent. He owns
Action Tax Service on Northland Drive in Rockford.
Contact Jerry at www.actiontaxservice.com.

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