Tax Preparer Programs

There has been a lot of activity lately relating to tax preparer registration, but first a little history. The IRS was growing increasingly concerned over incompetent and fraudulent tax preparers last decade so in 2009 they decided to roll out a tax preparer registration program. While the real issue was the volume of incorrect filings related to the earned income tax credit, the IRS decided that they would take a “comprehensive” approach and try to deal with all tax preparer issues in one single program. The Tax Preparer Registration Program was initiated in 2009 and the first PTIN’s were issued in 2010. In order to prepare a tax return submitted to the IRS you had to have a PTIN. For CPAs the program pretty much ended there because, due to the recognition of the competence and self-regulation of the CPA profession, CPAs were exempt from other aspects of the program such as passing a (very) basic exam and obtaining a minimum of continuing education each year.

Those parts of the program, however, were never fully rolled out. Fast forward to 2014 and the Courts ruled that the IRS had overstepped its authority (who thought the IRS was capable of such a thing) in requiring all tax preparers to pass an exam and take CPE. It is important to note that the Court did say that the IRS was within its authority to track tax preparers so the PTIN portion of the program was considered legal. The IRS did not like the Court ruling, but realized it would be highly unlikely it would get Congress to change the law to make its tax preparer program legal.

Instead the IRS has decided to roll-out a “voluntary” program. Participants in the voluntary program would have to pass a basic test and complete annual CPE, but they would not be covered by many of the rules covering CPAs and enrolled agents when it comes to providing tax advice. As such the AICPA thinks such a program would be very misleading to the public, but more importantly not deal with the issue that is at the core of why the IRS started down this path in the first place. A voluntary program is sure not to pick up any of the fraudulent tax preparers and it is very unlikely to address the incompetent ones either.

Instead of wasting resources on a voluntary program, the IRS should spend those resources on monitoring all tax preparers through the PTIN program and then finding and prosecuting the ones perpetrating frauds on the government. That would deal with the real issue that the IRS needs to solve and do it for a lot less cost. Isn’t that what government truly interested in reducing a budget deficit should be all about?

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There is no such thing as a free lunch

Have you been jealous as you read about all of the perks that the Silicon Valley tech workers get?  Well, the IRS has been reading about those perks too and is starting to wonder if Uncle Sam is losing out on some tax revenue.  Not surprisingly the tax code is not very consistent when it comes to taxing perks given to employees.  In some cases the code does not allow a business to deduct an expense, but they employee is not required to add it to their reported income.  In other cases, the business gets their deduction, but is required to add the value of the perk to the employees W-2.  An example of the latter is “excess” life insurance when the company pays for employee life insurance above the IRS $50,000 limit.  Another example that existed until recently was the personal use of a company provided cell-phone.

Of course, what is one persons perk is another person’s appropriate business expense to enhance the productivity of their workforce.  An example of the latter started years ago with company provided health care and insurance.  The idea to the business was that a healthier workforce had lower absenteeism and was more productive.  It has become  ingrained in our tax culture that perks (or are they now simply benefits) that have a direct benefit to the business may get the best of both worlds in the tax code – a deduction for the business and no income recognition for the individual.

That old compact may be changing as the government looks for ways to “enhance revenues” (that is increase taxes to the rest of us).  Medical benefits are clearly in the cross-hares of the government as they are now listed as the number one “tax expenditure” year after year.  Of course, if you are a politician, telling millions of voters they have to suddenly pay tax on something that was “free” for years is probably a good way to lose your job.  From a politician’s viewpoint, a better way to accomplish that objective is to make the medical benefits no longer deductable to the company.  Then when the company deals with the effective increase in their expense – by reducing or eliminating benefits or other forms of compensation – it is the “evil” business’ fault, not the governments.

And that brings us to all of those free meals that employees of Google, Facebook and other enlightened Tech companies provide.  Right now those free meals are in the benefit sweet-spot – deductible to the company and not considered income to the employee – but that may not last for long.  The companies say the free meals are an important business expense.  They help attract the best workers, and they are a great productivity enhancer by facilitating interaction and idea creation among employees.  Of course, trying to figure out how to add the cost of free meals consumed by any individual employee to his or her W-2 would be a nightmare, but the IRS has a solution readily at hand – just eliminate the deductibility of the free meals.

Of course, once you set that precedent (or has it already been set), then it only takes a few smart politicians (OK, it will take 270 of them, and they don’t have to all be smart) to see this as a great way to eliminate those pesky tax expenditures without feeling the wrath of the voter.  It’s enough to bring a warm smile to Republicans and Democrats alike.


AICPA Fall Council Meeting

I attended the AICPA Council meeting last week.  As expected a major topic of discussion was the FAF exposure draft on private company financial reporting, but before I get to that topic I want to list some of the AICPA’s accomplishments over the past year. The AICPA achieved record membership (372,000); Completed a major bylaw change better defining the categories of membership; Reached agreement with CIMA on forming a joint venture to issue the first Chartered Global Management Accountant credential; Successfully lobbied for the repeal of the onerous 1099 requirements and the elimination of the ability to patent income tax strategies; Resolved may problems with initial IRS proposals on Tax Preparer Registration; Completed the clarity project on auditing standards for private companies; Replaced and out of date and increasing unworkable SAS 70 regime; Successfully highlighted the CPA profession to the next generation resulting in record accounting majors and graduates; And completed an update of the vision for the CPA profession for the next 15 years.  I would like to highlight two of these accomplishments before I address Private Company Financial Reporting.

CGMA

The new CGMA certification for CPAs with expertise in Corporate and Management Accounting is scheduled to make its debut on January 31, 2012.  The core purpose of a CGMA is to be “trusted to guide critical business decisions.”  This is what CPAs in B&I do everyday, but now we will have a credential to recognize the unique nature of that service and differentiate us from non-B&I CPAs as well as other “accountants” that work in business.  There are going to be additional focus areas on professional development, but it won’t be only about the individual CGMA taking the initiative.  Our joint venture partner, CIMA, has extensive experience in working with employers to set up development programs for finance departments and we intend to bring this expertise into the U.S. along with the CGMA. This will not only enhance the skills of CPAs in business, but also elevate CGMAs in the minds of one of the most important influencers on our careers – our employers.

CPA Horizons 2025

The AICPA has spent time working with thousands of our members to update the Vision of the future of the CPA profession during the past year.  The development has been a evolution of the existing vision rather an a revolutionary change in direction.  The core purpose for CPAs remains the same, “ CPAs…Making sense of a changing and complex world.”  In addition many of the core competencies such as Integrity and Objectivity remain the same.  Some, however, have changed.  For example, “technologically adept” is now gone as a distinct competency because the concept is so pervasive it now is really part of all of the core competencies.  The final report on CPA Horizons 2025 will come out after inclusion of additional feedback from Council obtained at this meeting.  Be on the lookout for it late this year.

Private Company Financial Reporting

As I reported in my last blog, FAF issued an exposure draft on private company financial reporting that did not follow the Blue Ribbon Panel recommendations.  The Council was extremely disappointed in the FAF and as a result passed the following resolution at the meeting.

“Be it Further Resolved, That because the Financial Accounting Foundation’s proposal does not contain the establishment of a board under the Financial Accounting Foundation empowered to set differences in U.S. GAAP standards where appropriate for privately-held companies, which is the preference of this Council, and if the Financial Accounting Foundation’s proposal is not modified to include such a board under the Financial Accounting Foundation, this Council directs the AICPA Board of Directors to consider all options, including consideration of other independent standard-setting bodies as the standard setter for U.S. GAAP for private companies, the creation of a committee or board within the AICPA or a standard-setting body as a separate entity, to develop private company generally accepted accounting principles (PCGAAP) or comprehensive private company-specific basis of accounting that would deliver meaningful, lasting improvement to private company financial reporting consistent with the Blue Ribbon Panel recommendations.”

Just to be clear, let me repeat a statement made by our new Chair-Elect Richard Caturano.  The AICPA Board, Council and members do not want to take control of private company GAAP.  What we want is a separate Board under FAF as recommended by the Blue Ribbon Panel sponsored by FAF, NASBA and the AICPA, but if the FAF refuses to follow those recommendations, the AICPA Council and Board will have to act accordingly.


Take a Break

As I was starting to write this Blog I realized there was very little to write about.  Congress was on recess most of August so not much has happened in Washington since their return.  Europe traditionally takes a summer break in August so the IASB does too.  As a result, the FASB focused on non-convergence issues which meant that its agenda was much lighter than normal for the past few weeks.  Third quarter doesn’t end until September 30, so there is no reporting crunch, and the squeeze everything in before the Holiday’s rush of November and December are still too far in the distance to cause worry.  What is a normally busy CPA to do?

I do feel sorry for all my tax brethren with the September 15 and October 15 deadlines bearing down on them, but not too sorry.  I mean, they’ve had eight or nine months to get everything done.  I don’t hear a lot of pity from them when we CPAs in business and audit are killing ourselves to get the year-end financials done in twenty days or so before the press release is issued.  You say you thought it was sixty days before the reports are due to the SEC, well; I would like to see you explain to the CEO and Board why the numbers they issued in the press release would have to be revised. It would probably be your first and last time doing so. 

So while our tax brethren are struggling through these final self-inflected weeks of overwork and under-sleep, the rest of us are enjoying a break.  Football season is new and all the games mean something because no one is out of the bowl or post season hunt yet.  Baseball season is just getting to the good part with the Braves and Rangers in the thick of it once again this year.  The miserable heat of the summer is giving way to cool Fall mornings, just perfect for taking the dogs for a walk – in the neighborhood or along your favorite trail.  The leaves (at least on the trees that are still alive after the drought) will be turning bright colors soon to make those hikes even more enjoyable.

The Texas state fair is ready to open with its cacophony of new fried foods ready to destroy your diet.  Six flags is still open on the weekends with those ghouls and ghosts ready to entertain you and your children at their annual Fright Fest.  The ocean water is still warm enough for a trip to remember (as long as you can avoid the occasional hurricane).  The mountains are beckoning and its cool enough to enjoy that evening fire and make a s’more over the glowing red coals. 

Yes, it’s time to take a break.  Congress will start making noise soon enough. The IASB and FASB will be issuing the re-exposed EDs on Revenue Recognition and Leases.  The PCAOB will continue in its efforts to fix all that is not broken about our audit process.  The IRS will begin its quest to fingerprint everyone in the U.S. – I mean everyone who prepares a tax return.  And before you know it we’ll be ringing in 2012 and putting the finishing touches on the press release about the financial results for the year that was 2011.  So take that break now before it’s too late!