Preparer Tax Identification Numbers, e-file mandates, and pending tax legislation are weighing heavily on tax preparers' minds as they take a breath just prior to the start of filing season.
"One of the biggest challenges is for everyone to get a PTIN," said John Sapp, a vice president at Drake Software. "It doesn't take long to get, but it's something that people put off until the last minute. The second is the EFIN [Electronic Filing Identification Number, where preparers must complete an application to participate in the IRS e-file program]. A lot are just now becoming aware of it because of the e-file mandates. It can take several weeks, especially for ones that need fingerprints. All that takes time, and the key is to get informed about what to do."
Uncertainty, however, may be the biggest issue currently affecting preparers, according to Mark Luscombe, principal analyst at CCH Tax & Accounting, a Wolters Kluwer business. "The issues most directly affecting next season's returns are the provisions which expired at the end of 2009 that haven't yet been extended. These include the Alternative Minimum Tax patch, the ability to deduct sales taxes, and on the business side, the research and development credit and 70 other provisions affecting businesses, many of them narrowly focused. Unless they're taken care of early in the lame-duck session of Congress, we may end up like we were in 2006, where the IRS issued forms that removed certain deductions and credits, and then issued supplemental instructions explaining where to claim them."
Bob Scharin, senior tax analyst at the Tax & Accounting business of Thomson Reuters, agreed. "Practitioners should not plan too far in advance in preparation for the new tax rules," he said. "We can expect legislation in the lame-duck session or even early in 2011 that could affect 2010 returns."
GETTING PTINS
Everyone who intends to be a "paid preparer" needs to get or renew their PTIN number, noted Doug Van Der Aa, CPA, JD. "They need to get numbers for those on the staff that don't already have them. In a lot of firms, the junior staff don't sign the return, but they need to get the PTIN number."
"If you smell a tax return, you have to register and get a PTIN," quipped Mike Solomon, tax partner-in-charge of the Philadelphia office of EisnerAmper.
Uncertainty is a key topic of discussion in the end-of-year meetings at his firm, reported Solomon. "The overall state of year-end planning and preparation can be best described as uncertain as a result of the estate tax and the expiration of the Bush tax cuts," he said. "People are having a hard time handicapping what Congress will be doing. With the election results what they are, it's more likely that there will be an extension of the current tax rates for at least a year, but that presents the question of what do we do now? We know that things are changing, but we can't predict what they're changing to."
For example, Solomon said, "Until two months ago, the state of the law was that bonus depreciation expired in 2009. Then it was extended to 2010, so right now people are scrambling to take advantage of it. The same legislation gives an additional $8,000 to the existing $3,060 first-year depreciation on a new car used in business."
"The idea is that the government wants to encourage purchases to get the economy moving," he said. "Of course, the legislation would be more effective if people knew about it in the early part of the year, instead of waiting until the end of the year to make plans. A lot of businesses don't have funding set up, so it loses some of its effectiveness when it's passed so late in the year."
Solomon revealed that EisnerAmper is moving toward a paperless return experience, not only for efficiency but also to meet client preferences. "We're making sure that all tax returns and workpapers are stored electronically," he said. "Back in the day, you would have to go a big file room to look for a return. Heaven forbid if a flood or fire occurred."
"We're also encrypting all our electronic transmissions to clients to make sure they are secure," he said. "Any document attachments in e-mail are sent through a portal to make sure clients can send and receive their information securely."
E-FILING
The e-file mandates by both the states and the federal government are adding to the complexity, Solomon said. "More and more states are mandating e-filing, so there has to be a system in place to make sure we are complying," he said. "It creates a whole additional layer of administration just to make sure all the e-file forms are in one place, and you can substantiate what you have done in e-filing or electing out of e-filing."
To prepare for the season ahead, Van Der Aa suggested that preparers re-arrange their view of the world and think of the government as their new boss. "Always remember you're working for the government first and your clients and your firm second," he said.
"The actual steps you have to do to get ready for you new boss include getting your PTIN, becoming an e-file provider, having your Section 7216 client consent forms ready, reviewing the proposed changes to Circular 230 rules, and brushing up on accounting and auditing, specifically FIN 48 and the new Schedule UTP," he said.
"You can get your PTIN number into next year, but you can't prepare or sign a return until you have it," said Van Der Aa. "That applies to everyone who is a paid tax preparer. They want the preparers in cubicles to have those ID numbers to track them down and keep them in line."
Become an e-file provider, or Electronic Return Originator, now, even if you don't exceed this year's mandate of 100 returns, suggested Van Der Aa. "It's mandatory for the 2011 season if you expect to file more than 100 returns, but it drops down to 10 returns a year from now. So if you file more than 10 returns, you might as well get with the program now. To do this you have to register your firm and all the partners and principals. This is separate from the PTIN regime. When you do it, the IRS may do a credit check, and absolutely will do a tax compliance check to see if these people have filed and paid their personal taxes. They will probably do a criminal background check. And they will search the IRS database to see if any of them ever had a preparer penalty."
CIRCULAR 230 AND FIN 48
Section 7216 consent forms should be ready to be mailed to clients along with organizers and year-end planning letters.
"You want to be able to talk to clients about other services you provide in the off season," said Van Der Aa. "You have to get the forms filled out and signed before you give them the completed tax return. If you want to talk to them about cleaning up their QuickBooks mess or personal financial planning or any of a host of personal financial or business matters, you need to get the forms signed, so start soon."
He also urged preparers to take a moment to review proposed changes to Circular 230 rules. "Circular 230 lays out the rules for what the IRS considers to be ethical tax practice," he said. "Those rules and standards are changing. For example, the failure to e-file where it is mandated can now be considered discreditable conduct, just like physically threatening or bribing or sexually harassing an IRS agent."
Lastly, Van Der Aa advised preparers to brush up on their accounting and auditing knowledge for FIN 48 purposes. "As we go forward, preparers will have to take the FIN 48 analysis of uncertain tax positions and lay them out on the new Schedule UTP," he said. "While it applies to corporations with over $100 million in assets during tax year 2010, the threshold gets reduced to $50 million in assets in 2012 and $10 million in assets in 2014. And the IRS will look at extending it to include partnerships, S corporations and tax-exempt organizations beginning in 2011."
STAFFING ON DEMAND
Although there are signs of an economic recovery, the downturn of the past several years has affected the staffing market, according to Todd Goldstein, president of Adept Resources Inc. "In past seasons, public accounting firms had a much earlier recruitment time frame for tax season," he said. "They're hiring a little later this year. Companies are doing more with less people, so we haven't seen such a big push for tax season."
Nevertheless, filing season always generates increased demand, observed Matthew Beck, managing director of the Mergis Group. "Tax season is such a confined season that there will always be an increased demand for temporary workers," he said. "We've recently seen more job postings for tax professionals. Firms usually come to us two days before they need temporary folk. And we've seen a strong uptick in permanent hires on the tax side."
One of the recent trends is the transition of corporate tax work from the Big Four and mid-tier accounting firms to a company's in-house staff, Beck pointed out. "A lot of corporations have hired staff [from accounting firms] to build their internal tax departments. They're bringing these tax functions inside," he said.
Trent Beekman, senior vice president at staffing concern Accounting Principals, has seen an increase in both temporary and permanent hiring in the tax market. "We try to find people with the skill set of those who have done similar tax returns," he said. "They have to meet the minimum qualifications, such as having a PTIN and meeting continuing education requirements, which vary from state to state. We target similar skill sets so the ramp-up time is not as much as if you try to get someone on your own. That's the biggest benefit clients get in using a staffing firmed compared to doing it on your own."
Beckman recommended that you give a staffing firm as much time as possible, and overestimate the number of people you want to interview. "Everyone is looking for the same skill sets, so if you're shooting for three to five people, ask for five to seven. Shoot a little higher than what you think, and give us as much time as you can so we can pipeline the necessary skill sets to get the work done. You're competing against everyone else looking for the same thing at the same time."
