Will the Fiscal Cliff Lead to Fiscal Theft?

The Internal Revenue Service stated on Tuesday that they will begin processing individual tax returns on Jan. 30, 2013, marking the official beginning of “tax season” for tax professionals.

However, some returns, including those containing “residential energy credits, depreciation or general business credits” will not be ready for processing until late February or early March (see IRS Delays Tax Season until End of January). In fact, there are at least 30 forms affected by this particular delay, according to the IRS Web site.

This could result in making tax return identity theft an epidemic problem. Accounting Today has covered tax return identity theft extensively, and this practitioner has, as recently as Wednesday morning, been on television advising viewers that the best defense is a strong offense (i.e., file as early as possible!). Practitioners and taxpayers are subject to accuracy related rules (in addition to signing under the pains and penalties of perjury) and are thus forced to wait for forms to be ready for IRS processing before actually filing. That is a tremendous disadvantage that doesn’t exist for tax return identity thieves.

Tax return identity thieves just need to file. No waiting for Form 4562 or any of the other 30 or so forms causing this delay. The concept of the “accurate tax return” isn’t on the mind of an identity thief. And this issue clearly wasn’t on the minds of Washington lawmakers when the fiscal cliff negotiations were in process. In addition to delaying the IRS, the effects of the Washington delay may also put more taxpayers at risk of tax return identity theft.

As practitioners, many of us have been at the forefront of communicating the concerns of tax return identity theft to the public. Although this practitioner hasn’t personally experienced a client being subject to identity theft, we’ve nonetheless been advocates for filing early for the 2012 tax return filing season. In fact, it’s our responsibility to not only warn our clients of the potential for tax return identity theft, but to also advise them as to what measures we have taken, as custodians of their very private information, to ensure that such information is secure, at least within our control.

Taxpayers are advised to become more and more diligent in the selection of a paid preparer, and it’s important for practitioners to know what the public is being told:

• Avoid practitioners who charge a fee, but refuse to sign a tax return.

• Avoid practitioners who charge a fee that is based upon a percentage of the refund. Practitioners may be asked from time to time, in the context of an IRS examination, to furnish copies of invoices for services provided, and one of the primary reasons is for the IRS to review the billing structure.

• Make sure the practitioner is either a CPA or attorney, or otherwise registered with the IRS and holding a valid Preparer Tax Identification Number, or PTIN.

• Finally, taxpayers are advised to ask what steps their tax practitioner has taken, or is taking, to combat identity theft. A practitioner must be able to show a client how their private information, and that of their family, is protected. Further, all of us, frankly, should be asking anyone we do business with who may have our information, exactly what their safeguards are. It is disconcerting to think what could be happening out there, with respect to Mr. and Mrs. Public who couldn’t get financing on the purchase of a used car, for example, and not knowing or even asking what happens with their personal information afterwards.

Avoiding the pitfalls in any of the above categories certainly goes a long way toward giving the public some confidence. And this practitioner believes anyone reading Accounting Today is already “in the choir.” But the truth is, the tax return identity theft epidemic is still with us, and perhaps Washington, in its infinite wisdom, perpetuated the problem through inaction. We will just have to wait and see if dealing with the “fiscal cliff” resulted in Congress dealing the U.S. Treasury a blow with respect to more fiscal theft.

For more information: www.onts9.com

 

Taxpayers Face Fiscal Cliff unless Washington Agrees on Deal

Congress is scheduled to return Thursday, with one of its top priorities a deal to avert the December 31 “fiscal cliff” deadline of looming tax increases and automatic spending cuts, but it will need to work quickly or reach some type of interim agreement.

“While a deal looked close on several occasions during negotiations, it’s been elusive so far,” said CCH senior federal tax analyst George Jones. “Whether a resolution can be reached before Congress recesses for the year grows dimmer as the day’s progress.”

The fiscal cliff, shorthand for Jan. 1, 2013, when the terms of the Budget Control Act of 2011 are scheduled to go into effect, includes a series of across-the-board spending cuts and tax increases.
According to CCH, three scenarios that could transpire over the next few days include:

  • A full resolution is reached. The Presidential and Senate Democratic proposal and the Republican plan still remain miles apart. Most attention has focused on the divide between the tax increases in the Democratic proposal on incomes of more than $200,000 for single filers and $250,000 for joint filers; and the spending cuts in the Republican proposal, particularly to entitlement programs. “Last week it seemed President Obama and House Speaker Boehner were circling in on a middle ground, but that fell apart and it’s not clear they will be able to return to those positions to resume negotiations this week,” said Jones.

The President had mentioned being open to a $400,000 threshold on income tax rates at one point.

  • An agreement “in principle” with details worked out in 2013. A full resolution would require reaching an agreement, finalizing the bill and getting it voted on in both the House and Senate. That may not be possible with the time left, however. “They could pass legislation establishing a framework of general tax increases and/or spending cuts and allow the new Congress to work out the details early next year,” said Jones.

 

  • No agreement is reached and the Bush-era tax cuts fully expire. Not only would this increase taxes across the board based on income, it also would make an estimated 20 million additional families subject to the alternative minimum tax, raise the capital gains rate and tax dividends as ordinary income. In addition, the child tax credit would be cut in half to $500 from $1,000 and the estate tax would revert to 55 percent with a $1 million exemption amount compared to 2012’s 35-percent maximum estate tax after a $5.12 million exemption, among other tax impacts.

“Even if we go over the fiscal cliff, Congress could act early next year to reach a compromise and make any agreement retroactive to the beginning of the year,” said Jones. “However, this would not be the ideal scenario for most taxpayers, businesses or investors—most of whom would prefer some degree of certainty heading into 2013.”

Tax Outcomes for Middle-class Couples
Depending upon the taxpayer’s situation, the different proposals could have an impact of a few hundred dollars to several thousand dollars in the taxes they owe.

The free CCH 2013 Fiscal Cliff Estimator allows individuals and tax advisors to compare a taxpayer’s 2012 tax liability against the two proposals as well as what would happen if Congress does not act.

For more information: www.onts9.com

 

Obama Meets Small Biz Leaders to Discuss Fiscal Cliff

President Obama met with a group of small business owners and advocacy groups to discuss the prospect of expiring tax cuts and the so-called fiscal cliff.

 

Colorado entrepreneur Lisa Goodbee joined the President and 14 other small business owners from across the country on Tuesday to talk about the fiscal situation being created by a host of tax increases and billions of dollars in automatic spending cuts that will take effect on Jan. 1 if Congress and the president can’t agree on a plan to reduce the deficit by year’s end—known as the fiscal cliff. If not avoided, this situation will have a dire effect on entrepreneurs and the middle class, small firms’ core customer base.

“Business is picking up as the economy recovers, but my clients could take a big hit if we fall off the so-called fiscal cliff, and that could be devastating for my business,” said Goodbee, president of Goodbee & Associates, Inc., an engineering firm in Centennial, Colo., in a statement. “It’s really important for my clients and my own business for Congress to take a balanced approach to this problem, and find a sensible solution that both generates revenue and cuts expenses.”

Obama has pushed for a number of small business tax breaks to stimulate the economy. The tax breaks would refund 10 percent of the cost of new payroll—in the form of new hiring or new wages—up to a total of $500,000 next year.

Four other participants in the White House meeting were affiliated with the American Sustainable Business Council and Business for Shared Prosperity: Mandy Cabot, CEO of Dansko Inc, a footwear company headquartered in West Grove, Penn.; Lew Prince, managing partner of Vintage Vinyl in St. Louis, the largest independent music store in the Midwest; and David Bolotsky, CEO of UnCommonGoods in Brooklyn N.Y.; Nikhil Arora, co-founder of Back to the Roots, an urban mushroom farm in Oakland, Calif.

Cabot, Prince, Bolotsky and Arora are among more than 600 business owners and executives who signed a letter sent by the advocacy groups American Sustainable Business Council and Business for Shared Prosperity calling on Congress to end costly Bush tax cuts for the top 2 percent and reinvest in America.

“We’re not here asking for anything for ourselves,” said Prince. “We’re here because we want the best for our country. I’ve run a small business for more than 30 years. Expecting high-income tax cuts to trickle down as job creation is like pouring gas on your hood and expecting it to fuel your engine. It’s time to stop giving tax breaks to wealthy households and big corporations, and reinvest in America.” Prince is a leader in Business for Shared Prosperity.

In their letter to Congress, the business leaders said, “In the last decade, we have been cutting taxes on the wealthiest Americans and underfunding vital programs to pay for them. Large and growing budget cuts have had a severe impact on business, particularly micro and small business and job creation—reducing funding for infrastructure improvements, community economic development programs, housing, job training and much more. America’s failing infrastructure is starved of funds and falling further behind our global competitors. … The high-end tax cuts are hurting our economy. It’s time to end them, not extend them. This would be an important step in rebuilding an economy that grows our small businesses and middle class.”

An opinion poll released earlier this month by the advocacy group Small Business Majority found that nearly eight in 10 small business owners are aware of the fiscal cliff. The poll also revealed that entrepreneurs don’t want a solution to interfere with job creation opportunities. A majority of them believe it’s more important for Congress to focus on creating jobs than reducing the deficit. However, small business owners see eliminating tax cuts that only benefit the wealthiest as one part of a potential solution.

By nearly a two-to-one ratio, small business owners believe spending cuts for education, health care and infrastructure would hurt the economy more than a tax increase on the top 2 percent. A majority also believe that allowing tax cuts for high-income earners to expire is the right thing to do given the current economic situation.

For more information: www.onts9.com