The tax season crunch began later this year as a result of late legislation and the inability to e-file returns with certain forms or schedules.
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Between the late passage of legislation and having to monitor each day which forms are available, it has been a confusing tax season thus far, according to Roger Harris, president of Padgett Business Systems. "Added to that is the confusion of the invalidation of the PTIN system," he said.
"The judge initially threw out the whole system," he noted. "When the IRS went to get a stay, at least he clarified that the PTIN system can operate; what we don't know is whether the testing and CPE is voluntary. You still have to have a PTIN and the system is back up for it. But the bigger issue is to look every day and see what forms you can file. Don't blame the IRS -- they're doing pretty well, considering the legislation was passed as late as it was."
Projecting a taxpayer's liability for next year's taxes is particularly difficult this year as a result of tax law changes, observed Marty Davidoff, of E. Martin Davidoff & Associates. "It would be nice to use our tax preparation software," he said. "Last year we could project from 2011 to 2012, and it would turn out pretty close. This year we have to export it and manually put it into BNA software."
"Clients are getting better at understanding the paperless concept," he noted. "Identity theft is becoming a bigger issue. We're pulling more transcripts on people to find out if their returns have been filed already. So far, close to 3 percent can't be filed because someone has already filed them falsely."
A recurring issue is who gets the exemption during a divorce proceeding, Davidoff indicated. "Where one spouse files a joint return but doesn't tell the other spouse, whoever files first gets the refund, and whoever files second is rejected from e-file and has to manually file the return," he said. "It's the wrong policy - they should take the return in and send notices to both parties."
Another issue is the question on Schedule C asking whether the taxpayer was required to file Forms 1099, and if so, "Did you or will you file the required Forms 1099?"
"Last year it was optional, but this year it's required," he noted. "I have to tell clients that they can't say 'Yes' if it's not true, and if they say 'No', they're admitting to a violation of the law. It's not a happy place for them."
The crunch came later than usual for New York-based CPA and attorney Alan Straus. "We left a lot of returns sitting in a drawer until the IRS was ready, and then we pushed the 'go' button," he said. "The big issue is how do you do projections for 2013? In the past you could just interchange numbers a little and come out to where the person would be for the following year. You can't really do that for 2013."
"This year, in particular, we have more gift tax returns as opposed to prior years," noted Miguel Farra, principal-in-charge of the Tax and Accounting Department at Miami-based Top 100 Firm MBAF CPAs. "There were a lot of gifts last year as a result of the fiscal cliff and proposed changes in the tax law regarding exemptions for gifts. So this year we're doing Forms 709 ahead of time while we're waiting to complete individual returns."
Farra also finds it more difficult to project 2013 taxes. "Tax year 2012 is very different from tax year 2013. We just finished an estimate for a client on taxes he would pay in 2013 had he the same income as he had in 2012. We had to do the computation manually, since there's no computer program yet that can do it."
"We encouraged our clients to submit their information early so we could review it and have time for tax planning," he said. "At year's end, accelerating income and deferring deductions was appropriate in many cases. Remember that the fiscal cliff had changes in the tax law already in place. In doubt was how capital gains and qualified dividends would be taxed. They were supposed to go from 15 percent to 39.6 percent, but they went up to 20 percent only."
The recent tax law changes brought with them a tremendous volume of new information, noted Bill Armstrong, leader of the International Tax Group at West Coast Top 100 Firm Moss Adams. "I'm not sure the profession has absorbed this quickly enough to reflect it on the tax returns of early filers," he said. "It's a significant undertaking to keep up with the volume of law changes. People want their returns completed on the same time frame as a year ago, but this year it simply takes longer to provide the same level of quality service."
Many individuals, especially if they are working for companies with an international footprint, have to file a Foreign Bank Account Report, Armstrong observed. "These now have to be e-filed, but only the taxpayer can do it. Attorneys and CPAs can't file on behalf of their clients."
The late legislation and inability to file promptly has hindered this year's filing season, agreed Cindy Hockenberry, manager of the Research Department at the National Association of Tax Professionals. "We were hoping that they would extend the filing seasons beyond April 15 and March, but changing the filing deadline would take an act of Congress, and that won't happen."
"The tax preparer [registration] issue isn't helping matters either," she said. "A lot of preparers have put it on the back burner, whether or not they have the RTRP designation, because they have more pressing issues. But when tax season is over, it will resurface."
One of the main concerns of preparers this filing season is preparer penalties, she said. "The IRS is becoming more diligent in searching out preparers who are not doing things correctly. The Earned Income Tax Credit is a prime example. The IRS says, 'We don't expect you to audit your clients, but you do have to ask a number of questions when it comes to the EITC that some taxpayers aren't willing to give up. There's so much fraud with the EITC that the IRS had to do something, and at this point, this is what they're doing to eliminate the fraud."
Andy Presti, a partner in New York-based CPA firm Presti & Naegele, noted that they had a large batch of forms waiting to be e-filed once the IRS began accepting depreciation forms. "Individual forms are still behind where they typically were at this point in the filing season," he said. And clients are probably more confused than ever about what the actual tax laws are. They make assumptions on what the current laws are based on articles and proposals and the information from the government. They may have the correct idea, but not the correct year that it applies."
A CRUNCH DELAYED
The season has been delayed but smooth for Timur Taluy, chief executive of FileYourTaxes.com and ProTaxPro. "Although the late legislation did put pressure on a lot of preparers, fortunately the IRS Modernized e-File system has performed well," he said. "Some states have struggled in getting everything up and running, but overall, it's been moving along pretty well."
Fred Slater and Ellen Minkow, CPAs at MS1040 LLC, both expressed annoyance at the filing delays. For them, the season was just getting started at its usual crunch time. Most of the delays in filing were the result of late acceptance of the depreciation form, according to Slater.
"We'll end up with more compressed individual work between March 15 and April 15 because you have a delay in individuals coming in," he said. "The IRS started late and people read about that, and information from the investment houses has come in late. People were waiting for that as a signal to put everything else together, so it will compress the filing season on the individual side."
Identity theft is increasingly an issue during this filing season, according to Minkow. "The IRS publicizes that the earlier you file, the less chance there is for ID theft," she said. "They create the fear that you have to file early, but you can't because they are not ready for you."
And the early observance of the Easter and Passover holidays promises to interrupt the flow of tax season this year, she observed. "A lot of taxpayers like to get everything done before they go on vacation at the end of March," she said. "The early dates for Easter and Passover this year will change the flow of tax season. They want their returns done before they go off with their kids on a two-week vacation. But it's so early this year, we might catch families coming back before the April 15 deadline."