Friday's Tax Quote - October 29, 2010

“[Tax] liability is one of the notorious incidents of social life.”

- Oliver Wendell Holmes Jr.

Friday's Tax Quote - October 22, 2010

“Those who can do a good trade don’t wrangle over taxes.”

- Old Chinese Proverb

Friday's Tax Quote - October 15, 2010

“It was as true…as taxes is. And nothing’s truer – than them.”

- Charles Dickens

The IRS Must Now Write In English

Well, not exactly.  The IRS will continue to have Spanish counterparts to its regular forms.  However, today President Obama signed into law the Plain Writing Act of 2010.  This law requires that all federal agencies write their forms more clearly and in plain language that the intended audience can understand.

Is this law necessary? - Yes.

Should it be necessary? - No.  Its a bit ridiculous that writing in plain "English" should have to be mandated by law.  But sadly, in many instances, it is necessary.

The Iowa Politics website provided some examples of what these plain writing changes might look like when it announced the earlier passage of the bill in the House of Representatives.  These examples can be found here.  As an observation, the IRS appears to have seen the passage of the legislation coming as several of its forms began changing before the bill was singed into law. 

USA Today reported the story here.

Friday's Tax Quote - October 8, 2010

“The invention of the teenager was a mistake. Once you identify a period of life in which people get to stay out late but don’t have to pay taxes – naturally no one wants to live any other way.”

-Judith Martin

Warning – Your 501(c)(3) is about to lose its tax exemption

This alarmist headline is something that should be shouted to thousands upon thousands of small tax-exempt organizations across the United States. Come October 15, 2010, many small tax-exempt organizations will automatically lose their federal tax exemption unless they fulfill certain filing requirements.

In the Pension Protection Act of 2006, it became mandatory that most tax-exempt organizations file an annual return or file an electronic notice.  Failing to do so for three consecutive years automatically triggers a loss of exemption. October 15, 2010 marks the first three year final deadline for these organizations.

Small tax-exempt organizations (those with $25,000 or less in annual receipts) can solve this problem by visiting the IRS website (http://www.irs.gov/) and filing a Form 990-N.  Doing so is relatively simple and can prevent a host of problems. Organizations that lose their tax exemption will have to reapply with the IRS to regain their tax-exempt status.  If you have been through the application proces before, you know it can be a relatively arduous process.  The loss of exemption and reapplication may also call into jeopoardy the charitable contribution deduction of an organization's donors.

The IRS has compiled a list of organizations that they believe to be at risk. That list can be found on the IRS website by clicking here. 

Additional information concerning the potential loss of tax-exempt status and remedial filing requirements can be found here, here and here. 

New Registration Requirements for Tax Return Preparers

The Department of the Treasury has recently announced that its new registration system is up and running. The IRS will now require everyone that prepares “all or substantially all” of a tax return to register with the IRS and receive a Preparer Tax Identification Number (“PTIN”).

The requirement is part of a broad ethics reform that has taken place over the last 10 years amidst such accounting scandals as Enron and Worldcom. In 2005, the reforms amended the ethics rules governing tax practice before the IRS (known as Circular 230). The revisions to the ethics rules at that time principally affected the tax profession and the impact on most other people was that they now saw a “Circular 230 Disclosure” attached to any email from an accountant or tax lawyer. The new rules will again principally affect the tax profession but the impact could be much broader.

The new rules require that anyone that is paid for preparing "all or substantially all" of a tax return must register for a PTIN. The requirement that any tax return preparer register and obtain a PTIN may catch a large group by surprise including:

• Staff accountants working for accounting firms who prepare returns but do not sign or have ultimate responsibility for what the returns say.

• Paralegals working for attorneys that have as a part of their job requirements the preparation of tax returns.

• Interns or seasonal employees hired by accountants to help complete tax returns before the April 15th due dates.

• The friendly neighbor that prepares your tax return for a few dollars.

Understandably the accounting profession is somewhat troubled by these requirements. It is their position that only those accountants that sign the tax returns (and thereby take responsibility for what the return says) should have to register. A rule that only required signing preparers to register would appear to achieve the IRS’ goal of encouraging ethical return preparation. So far, however, the government has refused to modify the rule.

There is an economic component to this registration requirement as well. The annual fee for registering is $64.25. Of this amount $50 will go to the IRS for technology, compliance and outreach. With an estimated 600,000 registering this will result in an astounding $30,000,000 outreach program.

Even more controversial is whether these staff accountants, paralegals, etc. will be subject to the competency testing and continuing education requirements on which the IRS is busily drafting rules. We’ll have to stay tuned to see exactly how this part ends up playing out.

Registration and additional information is available online at www.irs.gov/taxpros.

Friday's Tax Quote - October 1, 2010

“Work and earn; pay taxes and die.”

- Old German Proverb