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Practitioners preparing for the 2017 tax season and the year ahead have a disparate set of issues to be cognizant of that go beyond their traditional routine of office set up, training staff, sending out organizers, offering planning tips, and scheduling appointments.

All of these are still necessary, naturally, but there are new issues that preparers need to be aware of both for their clients and themselves. These include later refunds from the Internal Revenue Service for the Earned Income Tax Credit and the Additional Child Tax Credit returns and security measures necessitated by the increasing fraudster targeting of tax professionals, and expanded due diligence requirements for preparers on certain credits.

And, while not in the Tax Code, the new overtime rules promulgated by the Department of Labor should be communicated to small-business owners, and may affect the preparer’s own tax office.

The environment has changed, according to Annie Schwab, tax manager at Padgett Business Services. “In the past, the focus was on attending webinars or conferences and learning about new legislation and tax strategies to pursue,” she observed. “But now it’s more than just the Internal Revenue Code that impacts the preparation business. Preparers must now be familiar with requirements from Health and Human Services and the Department of Labor, and must know the ins and outs of shielding their business from scammers and protecting taxpayers from identity theft.”

Beginning in 2017, the IRS will hold refunds on EITC and ACTC returns until Feb. 15, Schwab noted. The delay results from the Protecting Americans from Tax Hikes Act of 2015, which intended to help prevent revenue lost due to identity theft and refund fraud.

“Under the law, the IRS cannot release the part of the refund that is not associated with EITC or ACTC,” she noted.

“It is the preparer’s legal responsibility to protect clients’ business and personal records from unauthorized access,” she reminded practitioners. Schwab recommends that tax business owners check their errors & omissions malpractice insurance policy to see if it covers data breaches. If it doesn’t, consider adding to it, she advised.

The new overtime rules, which went into effect on Dec. 1, 2016, will cause headaches for many business owners, she predicted. “It’s a good time to remind clients about the new rules, since some of them might have missed the starting date.”

The effect of the rules is to raise the salary level limit for overtime from the current $23,660 annually to $47,476. These limits affect not just clients, but the firm itself.

Vince Mattina, a managing partner of Mattina, Kent & Gibbons PC, a Mich.-based CPA firm, noted that it is necessary for his firm not only to work on the DOL rules for clients, but for the firm’s own staff as well. “Our starting salary for business school graduates who join the firm prior to receiving their CPA license is near, but still under, the new salary threshold,” he said. “With a combination of experience and successful passage of the CPA Exam, the rate surpasses it.” During tax season, the firm will need to convert those staff members from salaried to hourly employees, monitoring their overtime hours to the extent possible.

For practitioners advising an owner-employee of a startup, there is an exemption from the rules for those who own a 20 percent or greater interest, Schwab observed. However, there is a disparity between potential violation of the Tax Code and the DOL rules.

“For example, if six individuals want to form a corporation, each will actively participate and own an equal share of the business,” she said.

“As a startup, the corporation will not have money in the first year to pay wages to any of the shareholders, so no distributions will be made. Under the IRS rules for reasonable compensation, the corporation has no risk of audit since no distributions were made to the shareholders. But according to the DOL, the corporation is in violation of the Fair Labor Standards Act. Since each shareholder’s ownership was less than 20 percent, the corporation should have paid them at least the minimum wage, including overtime pay, for the services they provided,” she said.



For those that anticipate lower taxes next year as a result of the presidential election, the usual “blocking and tackling” of accelerating deductions and deferring income should be considered, according to Mike Campbell, tax partner at Top 10 firm BDO USA. “It depends on clients’ net worth and where they fall in the tax bracket,” he said.

“The best tax advice in the wake of the election is to accelerate deductions into this year because of the high tax rates, and defer income to those years when the income tax will be lower,” agreed Jonathan Swartz, a tax partner at Top 100 Firm Bennett Thrasher. “Tax legislation typically gets delayed and then gets rammed through at the end of the year, but any new administration will want to make its mark.”

For clients who might benefit from the valuation discount in family limited partnerships or family limited liability companies, the time to take action is now, according to Campbell. The discounts will no longer be viable once proposed regulations under Code Section 2704 are finalized at year’s end. “There’s still time to do planning with FLPs and FLLCs, but the discounts for lack of marketability may be going the way of the dodo,” he said.

Long-term capital gains can currently be taxed at either 15 percent or 20 percent depending on income, so certain clients are in danger of paying an extra 5 percent if they make too much money, Swartz observed. “They need to be mindful of what their income is and have their CPA run projections to quantify potential tax savings,” he said.

Captive insurance companies and conservation easements can create potential tax savings for certain wealthier clients, noted Tom Wheelwright, founder and chief executive of accounting firm ProVision.

“Captive insurance companies were made permanent in the extenders bill last year,” he said. “Business owners and doctors use them a lot — it’s really getting a tax deduction for self-insurance. Usually, it involves things you would not normally insure because it would be cost-prohibitive, but now you can get the deduction upfront instead of waiting until it’s paid out in claims. There’s up to a $1.2 million deduction, so for certain wealthy clients it’s a great tool.”

“Owners of undeveloped land who don’t know what to do with it can get a charitable deduction for putting a conservation easement on the property,” Wheelwright suggested. “The IRS will always scrutinize it, but if it’s done right it’s a great opportunity for wealthy clients that don’t know what else to do with the land.”



“An overarching theme for the upcoming tax season is fraud and how preparers can help safeguard their clients as well as their own practice,” said Mark Jaeger, director of tax development for TaxAct. “While this isn’t a new theme, there are changes that preparers need to communicate to their clients — and key points they need to keep in mind for the security of their own businesses.”

“Tax-related identity theft will continue to be of concern this tax season,” Jaeger cautioned. “Unfortunately, tax professionals are increasingly becoming victims of fraud, with criminals remotely accessing their computers to steal taxpayer information, file phony returns, and collect refunds. Criminals are also stealing preparer PTINs, EFINs and e-Service passwords to engage in fraudulent activity,” he said. “As a result, tax preparers need to be diligent about security measures throughout tax season and beyond.”

Jaeger offered the following tips from the IRS:

  • Review tax preparation software settings and immediately implement security measures.
  • Update usernames and passwords and change them frequently.
  • Remember best practices such as never clicking a link from an unknown source, and remind staff to be alert to phishing scams involving e-mail, text messages and phone calls.
  • Routinely monitor PTIN accounts, checking that the number of returns filed matches IRS records.


In an effort to reduce improper claims for the refundable Child Tax Credit, ACTC and the American Opportunity Tax Credit, tax professionals will now need to comply with expanded EITC due diligence requirements, Jaeger indicated. “Much like they’ve had to do for returns including EITC claims, preparers will be required to complete Form 8867, Paid Preparer’s Due Diligence Checklist. This form certifies the preparer has confirmed the client’s eligibility for the EITC, CTC/ACTC and AOTC.”

“The due diligence requirement is part of a ‘program integrity’ provision of the PATH Act,” Jaeger said. “A failure to comply with the due diligence requirement results in a penalty of $510 per violation for tax year 2016 returns.”

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