“The income tax has made more liars out of the American people than golf has.” – Will Rogers

But what if it were easier? And what if the IRS made it nearly impossible to lie? What then?

Last year, IRS Commissioner Doug Shulman hinted that one way to reduce the potential for tax fraud was to have IRS prepare returns for taxpayers. That’s right, you wouldn’t have to prepare returns come tax time: the IRS would do it for you.

The idea is commonly referred to as a “simple return” or “ready return” (yes, it sounds like a snack you might buy at a Wawa). Under the plan, the IRS would send out tax returns that had already been completed with taxpayer identification and wage information. Taxpayers would merely review the returns for accuracy and sign at the bottom… kind of a “check the box if you agree” system. Taxpayers would have the opportunity to correct any mistakes prior to submitting the returns to the IRS.

Why not? The IRS already has a good chunk of taxpayer information on file. Add to that the obligations of employers, financial institutions and other third parties to provide wage and other income information to the IRS and there’s already a nice little database at the IRS’ disposal.

But putting those returns together is not cheap. Right now, the IRS simply doesn’t have the manpower to prepare returns for taxpayers and pursuant enforcement and collections activities and adding to the rosters (and thus, the budget) would be a major endeavor. Shulman, however, seems to believe that it might be worth considering.

A limited version of the plan is already in place in California. The plan, called (of course), ReadyReturn, is free to taxpayers who qualify in the Golden State. The state uses information from the prior year’s return along with information from the form W-2 to pre-fill a California state tax return. The return only needs to be reviewed by the taxpayer and signed. Brilliant, right? Then how come no one is signing on?

For one, the number of taxpayers who qualify is limited. To qualify, taxpayers must have filed a 2010 California resident return as single or head of household and no more than five dependents. Taxpayers must only have income from wages from a single employer and must claim the standard deduction with no credits other than the renter’s credit. Depending on who you are, the program was either wildly successful or a terrible failure. The pilot program, sent out to 50,000 taxpayers, had a 27% participation rate. That works out to about 13,500 taxpayers. The state has about 20 million taxpayers, making the overall participation rate less than 1/2%. In 2009, the number of participants in the program grew to 60,000 taxpayers, or about 3%. Hardly statistically significant. But the folks who are using the system appear to like it.

The program has also seen success outside of the U.S. Programs in Sweden and Denmark claim participation rates of over 75% (downloads as a pdf). Could the IRS duplicate those kinds of results?

I’m not so sure.

Notwithstanding the costs – which would be huge – to convert to such a system in the U.S., I don’t think that U.S. taxpayers would embrace a system where the government prepared their returns. For one, U.S. taxpayers aren’t enthralled with the feds these days. Most are seeking less government interference, not more. I don’t think many taxpayers would trust the government with their own finances; after all, the government can barely manage its own. Further, if you’ve ever seen a substitute return (one prepared by the IRS for a taxpayer), you know that there’s a financial incentive to prepare a return that produces the most revenue for the government, not what’s most advantageous to the taxpayer. And the benefit of that to taxpayers is what, exactly?

The underlying problem isn’t that taxpayers don’t have the wherewithal to fill out a simple tax form (and keep in mind that this option would only be available to taxpayers with simple returns): it’s that the Tax Code is far too complicated as it stands. The simple tax forms aren’t the problem and yet, those are the very returns the IRS seeks to make more, well, simple with this kind of plan. We keep skirting the real problem: a tangled, confusing Tax Code. I would suggest that reform, not pre-filled returns, is a better, more economical answer.

What do you think?

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At tax time, many taxpayers feel like they’re being ripped off by Uncle Sam. However, IRS is concerned that they might also be victims of those paid to help them: tax preparers. As a result, new rules governing the preparation of tax returns have been in the works for nearly three years with the first phase of the regulations implemented in 2011.

The efforts thus far to get paid tax return preparers to comply with the new rules have had mixed results. As of July 2011, more than 700,000 paid tax return preparers have registered with the IRS and obtained a PTIN. That means that about 1 out of every 8 – or about 12.5% – of the nation’s professional tax return preparers failed to comply with new regulations for 2011.

And those that have registered may not be as professional as you would think. An audit on PTIN applications by TIGTA, the Treasury Inspector General for Tax Administration, offered some surprising results. The audit revealed, among other concerns, that 962 PTIN applicants who have been in jail on felony convictions within the last 10 years received active or provisional PTINs. Of those, a whopping 77% (745 applicants) had not disclosed the felony conviction on their application.

About a third of those felons granted active or provisional PTIN holders were actually in prison when they received their PTINs.

And it gets better: 43 of the applicants which received active/provisional PTINs are serving life sentences. None of them disclosed their felony convictions on their application.

Would it have made a difference? Probably not. Current regulations do not prohibit prisoners from registering and obtaining PTINs.

Feel safer now?

I haven’t been a huge fan of the regs for the same reason that I think ethics classes for lawyers are silly: those folks who are inclined to cheat are going to cheat no matter the rules and the rest of us shouldn’t have to pay for their sins. Nonetheless, the IRS is soldiering on with preparer fees, exams and continuing education requirements.

If it makes you feel better, the IRS has decided that (*cough*) prisoners will not be issued PTINs and those who were issued PTINs will have them suspended (*cough again*). As of the report, however, the IRS doesn’t have a fix and is, instead, actively working on solutions. In addition, the IRS plans to match PTIN applicants to the list of individuals who have IRS Criminal Investigation convictions and individuals permanently enjoined from preparing tax returns.

Yeah. I’m pretty amazed that they weren’t doing it to begin with, too.

The IRS has struggled with how to deal with taxpayer privacy issues and scams involving prisoners for years. Prisoners are cheating the IRS out of millions every year: Sen. Sherrod Brown (D-OH) puts the amount of improperly generated refunds at $124 million though the IRS believes it is likely more than twice that amount. And it’s getting worse, not better: the number of fraudulent prison returns has tripled in the last five years.

Clearly, those most to blame are those prisoners who, despite being in prison, apparently can’t stop breaking the law. But I would also suggest that if the IRS focused efforts on, say, chasing those that they know are a risk rather than blanketing tax professionals, the result for tax professionals and taxpayers would be better.

For more on what TIGTA found in its audit on tax preparer compliance with the new regs, you can read the December 2011 TIGTA report here (downloads as a pdf).

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So months and months of debate on the payroll tax cut has resulted in this: a two month extension.

No, you didn’t read that wrong. Two months.

Democrats and Republicans in the Senate couldn’t figure out how to pay for the whole thing so they decided on a ridiculous fix. Two months.

“But it’s paid for!” That’s the whole selling point of the two month extension. Nice. You know what’s not paid for? The agita that employers, tax pros and the IRS will face trying to sort out a bifurcated tax year. For two months. Payroll companies are gleefully rubbing their hands together as we speak as they take on more clients who can’t handle the math and new forms. For two months. And I am sure that the IRS will be scrambling to print new tax forms and publications. For two months.

Not even a full tax quarter. Those forms 941 will be a joy, huh?

In return, showing that they have absolutely no bargaining power at this stage, the Democrats reportedly agreed – in full – to the controversial Keystone XL pipeline approval. (*shakes head*)

You know I’m not a fan of the payroll tax cut in the first place. It was clearly a vote-getting scheme to replace the confusing Making Work Pay Credit. But c’mon, folks… if you’re going to commit, then commit. Don’t pass a token measure. Two months. It reeks of pandering and lame and unworkable and weird.

We say we want simple when it comes to taxes and this is what we get. And we only have ourselves to blame since apparently these absurd measures work. If they didn’t, then why would our Senators keep up the nonsense?

Two months. (*still shaking head*)

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Nothing is written in ink (yet) but all indications are that Congress has reached an agreement that would avoid a government shutdown.

While the details are sketchy, it would appear that the final budget would include a payroll tax cut extensions, jobless benefits and a continuation of Medicare payments for physicians. All of these items were on the Democrats’ wish list. In return, the Democrats have dropped plans for the “millionaire tax” and are negotiating over the Keystone XL pipeline approval. Cuts in spending are also on the agenda.

Of course, the night is still young, which means there’s still plenty of time to gunk up the bill with all sorts of unrelated legislation.

The House and the Senate are expected to vote on the bill tomorrow. I’ll have a complete recap after the votes.

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The “naughty” list is getting longer… No, I’m not talking about Amy pinching her brother this morning while getting ready for school. I’m talking about those in Congress who are squabbling over the payroll tax cut extension all while the deadline for keeping the lights on in D.C. creeps closer. The Senate has yet to approve anything related to the extensions or the budget; the House has passed their own version of the payroll tax cut extension which addressed a number of issues (Keystone XL and broadband, for example) but did not include other substantive budget issues.

In fact, despite a deadline has been looming for awhile, we’ve seen little to no actual movement on the budget. If Congress can’t get a bill passed by the end of the day tomorrow, things get serious: the government would not be able to authorize anymore spending and the feds would have to shut down (though not completely).

So what will it take to get things moving? Well, for one, it appears that the Democrats are finally amenable to dropping the so-called “millionaire’s tax” or surtax on those taxpayers making more than $1 million. That had been a major sticking point for Republicans who refused to approve any bill with such a provision. The Democrats are expected to offer another proposal to offset the cost of the payroll tax cut extension; the Republicans have indicated that they will not sign off on any package without a corresponding offset.

So we have just under 38 hours left for Congress to come up with something… Santa – as well as the entire nation – is watching.

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When I was in high school, the coolest grown-up that I knew enlisted in the service. My older brother, Rob (okay, so maybe my circle of cool grown-ups was somewhat limited), joined the Navy. He drove me back to school shortly after the announcement, somehow managing to get lost between our tiny town and Durham, NC – or perhaps it was all a ruse to try and make me a Tarheel fan – prompting my mother to joke that she expected a submarine to pop up in the pond behind our house one day with Rob asking, “Hey, Mom, which way is China?” It was a joke that would last ten years, as he served as a submariner for about that long.

It was no surprise, then, when about six years later, my little brother (who I will continue to refuse to admit is a grown-up) also signed up to join the Navy. He has served ever since and is currently active military. He joined a plethora of family members who served, including my grandfather and great-grandfather, a bunch of uncles and cousins and my father-in-law.

My brothers and I don’t always agree: Rob is still a Tarheel fan, for goodness sake, and *says in a whisper* Timothy used to own Red Sox tickets. But we do agree on this: those that serve our country deserve recognition. Even Congress agrees.

This week, the Senate approved a package that would provide tax credits for employers who hired unemployed military veterans. And at a time when every single vote these days feels like a struggle, this one passed with flying colors: 94-1. Sen. Jim DeMint (R-SC) was the lone dissenter on the grounds that he does not “believe the government should privilege one American over another when it comes to work.”

Um, except, Senator? Over here?

Recent Department of Labor statistics estimate that the unemployment rate for young veterans returning from Iraq and Afghanistan is as high as 27% (downloads as a pdf) – three times the national average. Of the estimated one million jobless veterans in America, two-thirds of them fall within the 35-64 age group – both of my brothers fall into that age category. About one in 12 veterans can’t find a job in this country.

And to be clear, those are young men and women who put their lives in danger for you and me. They’ve endured months – some of them years – apart from their families. They’ve lived through extremes of heat and cold. They’ve been targets of attacks and roadside bombings. They’ve watched their friends suffer and die. They’ve gotten up for work every day not knowing whether this might be their last day.

I happen to think they deserve a break or two.

Fortunately, there are a few folks in Congress who agree with me. Following Senate approval of the bill – despite DeMint – the bill goes to a vote in the House.

The law, called the VOW to Hire Heroes Act, would provide a tax credit of up to $5,600 for employers who hire veterans who have been looking for a job for more than six months; it would also provide a $2,400 tax credit for employers who hire veterans who are unemployed for more than 4 weeks but less than 6 months. The tax credit is boosted to $9,600 for employers who hire veterans with service-connected disabilities who have been looking for a job for more than six months.

To help vets increase their marketability, the law would also offer education and training opportunities for older veterans by providing certain unemployed veterans with up to one year of additional Montgomery GI Bill benefits for education or training programs at community colleges and technical schools. It would also provide disabled veterans up to one year of additional vocational rehabilitation and employment benefits.

I’m not generally crazy about narrowly tailored tax credits but considering the circumstances, this one makes sense.

So, thanks to our Senators for doing the right thing.

And thanks to my little brother for doing a job that I know I’m not tough enough to do.

And thanks to my older brother who served honorably in the Navy for so many years.

And for all of my friends and family who have served in various branches of the service, thanks for your service. I am so proud to know all of you.

And to each of my readers who serve or know and love someone who is serving or has served, thank you all for your sacrifices.

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I had prepped myself for the idea that taxpayers were going to be confused by the new health care reporting requirements ever since last year when the rumormongering about taxing health care benefits in 2011 started. I wasn’t expecting taxpayers to be in a dither quite so far ahead of tax season. Judging from the number of panicky emails in my inbox, I was wrong… But then (*smacks self in the head*), I had forgotten: 2012 is an election year. ‘Tis the season for half truths and innuendo.

So let me see if I can nip some of this in the bud now.

It is true that for the calendar and tax year 2011 employers must report employer-provided health care benefits for employees. The amount of benefits paid on your behalf will appear on your W-2 in 2012 as a report. It will not affect your taxable income for the calendar and tax year 2011.

The amount will be reported in Box 12, using code DD on your federal form W-2 for 2011 (form will download as pdf). In case you’re wondering where that would be reported on the actual form, take a peek at the compensation side of the form W-2:

Box 12 is on the bottom righthand side, where you would also see your elective tax deferrals and designated Roth contributions reported.

Why the new reporting requirement? Under the new health care plan, there is a penalty for those taxpayers who are not covered by health insurance. The reporting requirement will eventually assist the IRS in verifying that taxpayers have coverage. Additionally, the new reporting requirements will help identify those taxpayers who will be subjected to the so-called Cadillac tax on high-dollar insurance plans (effective in 2018).

Will of this reporting eventually result in taxing health-care benefits? That’s anyone’s guess: we can speculate until the cows come home. But for now, you will not pay tax on the amount of employer-related health care benefits reported in 2011 (some exceptions, such as HRA distributions which are not for reimbursed expenses apply just as they always have). In other words, your health care benefits won’t be taxed any differently for the 2011 tax year as they were for 2010.

If you’re interested in more information about the health care law, you can read my original summary of some of the highlights of the health law as originally passed here. If you want to read the whole kit and caboodle as originally passed – all 906 pages of it – you can download it as a pdf here. The reconciliation act – just 55 pages – can be downloaded as a pdf here.

Author’s update: The IRS is offering transitional relief for employers with respect to reporting requirements. For 2011, reporting health care benefits will not be mandatory nor subject to penalty for employers (see Notice 2010-69, downloadable as a pdf for complete details). Small business employers, defined as those with fewer than 250 employees, have an additional year beyond the 2011 relief. Of course, the IRS has noted that they are not discouraging early compliance and judging by the fairly limited play the transitional relief has been given, I expect to see a good chunk of reporting in 2012.

Hat tip: jim57 (thanks!).

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Hooray! Christmas has been saved!

Okay, a bit dramatic.

But the hue and cry surrounding the so-called Christmas tree tax had reached such a fevered pitch by this afternoon that you could have assumed the very holiday itself was under attack. Rest assured, the holidays are still on track.

Nonetheless, President Obama announced plans to nix the proposed fee on the sale of Christmas trees. No more Christmas tree tax.

The fees from the sale – which had been characterized as a tax – were intended to fund the Christmas Tree Promotion Board. That’s right. As I blogged earlier today, the point of the board was to boost the image of Christmas trees.

Really? Christmas trees don’t have an image problem. Brussel sprouts. There’s your image problem.

But there were a couple of bigger issues here.

One, the fee would likely have been passed along to the consumer. And it was a small fee. But it was a fee. Another one. Another fee imposed at the government level that consumers bear. Of course, the National Christmas Tree Association was quick to promise that wouldn’t happen, saying that the program “is not expected to have any impact on the final price consumers pay for their Christmas tree.” I don’t buy it. The cost of business is the cost of business. All business owners understand that. They don’t eat fees out of the kindness of their hearts – even if they are selling the most jolly items on the planet.

The bigger concern was that government is picking and choosing industries to support. As I blogged earlier, that feels wrong. No wonder most Christmas tree growers were in favor of the charge. Who wouldn’t want a government-organized national campaign meant to improve the sale of your product or services?

But why Christmas trees and not, say, Christmas wreaths? Or Halloween pumpkins? Heck, I’m a lawyer. We have an image problem. Why not impose a federal mandated fee on the provision of legal services so that we can form a national board to improve our image? (Yeah, yeah, insert all of your lawyer image jokes here.)

Fee or not, I was buying my tree. I suspect most other Christmas tree buyers felt the same. The issue was never about the scope of the fee. And it wasn’t the presumption that the President was secretly plotting to destroy Christmas (really, people, you actually believed that?).

It was about free market and government and priorities and slippery slopes. And I, for one, am glad to put a period at the end of this one.

(I weighed in on a related story here.)

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I like a fresh-cut tree at Christmastime. Yes, I know all the arguments against buying fresh-cut Christmas trees and we do it anyway. It happens to be one of my favorite things about the holidays and now that I live in the snowy northeast, there’s something ridiculously gratifying about heading out in mittens and hats with my kids to choose a Christmas tree. If you’ve done it before, you know the drill: finding one that’s not too tall, not too short, not too fat, not too skinny. It’s all part of the fun.

(For the record, before you shoot off a nasty email, you should know that when we take our tree down in January, we cut it up and re-use the branches in the backyard which makes the birds and my garden happy – apparently 93% of all folks with live trees recycle or reuse them in a similar manner.)

We’re not the only family that makes the National Lampoon-like trip to get a tree. There are approximately 25-30 million live Christmas trees sold in the U.S. each year.

Of course, all of those trees generate quite a bit of revenue for retailers, growers and marketers. But it’s clearly not enough. This week, the Department of Agriculture announced a new 15-cent fee/tax on the sales of fresh-cut Christmas trees by sellers of more than 500 trees per year (the plan has been in the works since last year). The idea is to raise money to support a new federal program to – wait for it – improve the image and marketing of Christmas trees. Apparently, we don’t think about Christmas trees as positively as the feds – and the lobbyists – would like for us to. So, government did what government likes to do: created a committee and raised fees/taxes to pay for it.

And since we’re working on improving the image and marketing of Christmas trees (by charging more for them), we might as well define what it is. For your information, the official definition for this purpose is:

Christmas tree means any tree of the coniferous species, that is severed or cut from its roots and marketed as a Christmas tree for holiday use.

So Festivus trees get a pass.

I’ll admit that I was a little horrified by the notion of a special Christmas tree regulation. So I popped on over to the federal regulations to see what else we’re in the business of promoting these days. We also have marketing programs on the books for cotton (7 CFR 1205), mangoes (7 CFR 1206), potatoes (7 CFR 1207), raspberries (7 CFR 1208), mushrooms (7 CFR 1209), watermelons (7 CFR 1210), honey (7 CFR 1212), popcorn (7 CFR 1215), peanuts (7 CFR 1216), blueberries (7 CFR 1218), hass avocadoes (7 CFR 1219), soybeans (7 CFR 1220), sorghum (7 CFR 1221), pork (7 CFR 1230), honey (7 CFR 1245), eggs (7 CFR 1250), beef (7 CFR 1260), wool & mohair (7 CFR 1270) and lamb (7 CFR 1280). Whew.

We love our regulations, huh? And promotion. And marketing.

Which makes me wonder whether the feds should actually be in the business of well, promoting business. It feels like we have enough on our collective plate. Like our giant debt. And a potential government shutdown.

I guess the great Christmas tree program shortage was an easier fix.

The Christmas tree fee/tax is remarkably similar to our whole income tax debate. Folks are going to buy Christmas trees. The government figures that if it charges for selling those trees, then it can use the money to create a federal program to promote the sale of Christmas trees and the industry will sell more trees. Huh?

I’m sure it made sense on paper (made, not coincidentally, from trees).

The saving grace of the program is that the funds are not (ostensibly) coming out of taxpayer’s pockets. The fee/tax is mandatory for those Christmas tree sellers who meet the criteria. However, sellers are free to pass along the fee/tax to the consumers – which we, of course, know that they will – but that part isn’t mandatory. That prompted Acting Administrator for the Agricultural Marketing Services of the USDA David R. Shipman to remark that the fee/tax is not a tax. Interestingly, Shipman’s comments bring us back to the fee versus tax argument surrounding the debit card “Durbin Tax.” In this case, Shipman claims that the fee/tax “is not a tax nor does it yield revenue for the federal government.” Hmm. Potato (defined at 7 CFR 1207.396 as “any or all varieties of Irish potatoes grown by producers in the 50 states of the United States and grown in foreign countries and imported into the United States”), pah-tah-toe?

As I’ve said before, calling something a tax makes it so much more distasteful. Calling it a fee sounds so regulatory and somehow detached from consumers.

In this instance, the fee can be easily passed to the consumer. There’s no need to break out the calculator and figure how much to boost prices. It’s a per tree fee which can easily be tacked onto the final cost. In that regard, it’s maybe not so detached as those debit card fees. And it feels more like a tax.

It will be interesting to see how consumers react. It’s just 15 cents. It’s easy to nickel and dime consumers (in this case, remarkably so since the fee is exactly a nickel and a dime) at the best of times, especially at the holidays. But it makes you wonder what else the government can charge us for… We’re already fee-ing tax preparers for tax season. What’s next? An extra fee for pumpkins on Halloween? Eggs at Easter? Kisses at Valentine’s?

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Those must have been some delicious muffins.

Initial reports out of the Department of Justice last month indicated that department officials had doled out $16 per muffin for an Executive Office of Immigration Review conference in Washington, D.C. The revelation raised ire among taxpayers and officials, making those muffins the equivalent of the $600 toilet seats of 1985. The overspending even prompted Sen. Chuck Grassley (R-IA) to call for firings, claiming that heads needed to roll.

Only, like those toilet seats, there is a bit of mythology that overtook reality. It turns out that those muffins weren’t quite so pricey after all.

A little over a month after the original report was released, causing a stir, acting Inspector General Cynthia Schnedar has issued a revised report about the conference (downloads as a pdf). The revised report noted that the department had incorrectly reported the cost of the muffins. It turns out that the error was the result of an incomplete receipt which reflected a $4,200 charge for “muffins.” However, the Capital Hilton, which hosted the conference indicated that the $4,200 cost included fresh fruits and beverages, as well, making the $16 per person cost a lot easier to swallow.

The DOJ said about the mistake, “We regret the error in our original report.”

Whew. So the muffins get a reprieve.

But while the errant muffin reporting is getting front page play, the department hopes that the correction doesn’t take away from the bigger picture:

We hope that our correction of the record for this one conference among the 10 conferences we reviewed does not detract from the more significant conclusion in our report: Government conference expenditures must be managed carefully.

It’s a sentiment that is being echoed: in an era of cost-cutting, government agencies are facing increased scrutiny over the tax dollars they spend. And despite the great muffin reporting blooper, overspending is still going on. For example, the report indicates that at an AMBER Alert Conference, over $23,000 was spent on a continuous beverage service over four days. That worked out to each can of soda costing $5.57 and each 8-ounce cup of coffee costing $5.20. Now you know that I love my coffee – I mean, I really love my coffee – but $5 per cup?

Other audits showed spending on snacks and hors d’oeuvres far in excess of department recommendations, lunches that cost nearly $50 per person (nearly twice the allowable rate), travel expenses that were the result of poor planning and unreported costs that accounted, in some cases, for hundreds of thousands of dollars.

Clearly, overspending is still a real problem in government agencies. And it’s something that needs to be addressed, especially at a time when agencies like the IRS are facing real budget dilemmas. It’s hard to understand how taxpayer phone calls can go unanswered at the IRS while staffers at a Department of Justice luncheon are munching on $5 Swedish meatballs (yes, that was $5 per meatball) and those attending the U.S. Attorneys National Conference are digging into Beef Wellington and tuna canapes.

We all realize that trimming the budgets on $5 cups of coffee won’t cut the deficit in two. But it’s symbolic of a bigger problem: uncontrolled government spending. Hopefully, more oversight of spending will result in better choices. And cheaper muffins.Similar Posts:

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