While friends and family are more concerned with the holidays at hand, tax practitioners are taking last-minute steps to ensure that they and their clients have a successful tax season.Training people to be able to staff the offices properly is key for Peoples Income Tax Inc., said chief executive Charles McCabe. "There just isn't a supply of qualified preparers out there who are willing to work for three months. And if someone is available, you have to ask why they are available - you don't want to hire someone else's problem."

As a result, the company, with 10 locations in Richmond and central Virginia, places heavy emphasis on finding people who want to learn. "It's better to find people with the right attitude and availability and teach them taxes," McCabe said. He also puts potential preparers through pre-work training, including customer service and marketing, and familiarizing them with the software.

Alan Osmolowski, head of the tax department at New England regional firm Carlin Charron & Rosen LLP, also emphasizes staffing and training. "We are starting to schedule CPE now," he said. "We have an annual tax update. We used to do it in-house, but this year we've decided to outsource it."

It's also important to introduce staff to any new procedural and technology changes, observed Osmolowski. "We train our staff on new technology," he said. "We're in the process of implementing an online scheduling system. We were disappointed in our scanning provider last tax season, and have gone back to outsourcing a piece of it."

He noted an upsurge in state and local tax issues. "We're seeing a lot more activity in these areas," he said. "It's more of a year-round thing to deal with. There's been a lot more activity in state jurisdictions going after out-of-state taxpayers."

He noted that even with the year's delay for FIN 48's application to nonpublic companies (see story below), it's something to remind clients about. "You should plan on having those conversations with them during the year. FIN 48 now applies to 2008 financial statements for nonpublic companies. It's something they need to be mindful of for next year."

Many nonpublic companies are getting away from GAAP financial statements, and thus will avoid having to deal with FIN 48, according to Osmolowski. "They're using tax-based financial statement or OCBOA [other comprehensive basis of accounting]," he explained. "Of course, if they're applying for a loan and the loan document calls for GAAP, they have to deal with it. There's no difference between large GAAP and small GAAP - they have to ask if the bank will accept modified accrual-basis or income tax-based financials."

He added that staffing continues to be a concern. "It's a very competitive market, but we've been successful in attracting and maintaining talent," he said. "We'll be doing less outsourcing this year than in years past just because we've been able to build capacity internally."


Jerry Jonckheere, a tax partner at super-regional CPA and business advisory firm Plante & Moran, said that he emphasizes year-end planning for his clients. "It's important for them to avoid surprises," he said. "We go through projections to make sure they're situated correctly for estimated taxes. We go through December 31 time-sensitive items, and also go through tax-planning ideas that may not be time-sensitive, but are important for them to note during the year."

The research and experimentation credit is given special attention by Jonckheere. In general, the R&E credit allows businesses to claim a credit for the amount of any qualified research that exceeds a base amount. "It seems like it always expires and gets reinstated," he said. "The last three years there's been some tweaking to make it simpler. A lot of practitioners are unaware about qualification under process improvement," he said. "In the past the focus was on people in white coats in the back room. Now, most manufacturing companies qualify for that, since they're constantly working on improving their processes."

Jonckheere advised keeping a close eye on proposed legislation. "Even though the proposals may not get passed in its current form, they lay out blueprints of ideas for future legislation," he said.

"The biggest thing the current proposal does is put a lot of popular tax-planning ideas on hold," he said. "For example, there are proposals in Congress to reduce the corporation tax rates and increase individual rates. Should this legislation pass, one of the most popular trends of the last 10 years for midsized businesses - S corporation elections - may no longer be as popular as when the top corporate and individual rates were the same, at 35 percent. Paying a corporate tax at a 30.5 percent rate will be much more palatable if the top individual rate increases to 39.6 percent, which the legislation proposes."

The S corporation election will now depend heavily on the future cash distribution plans of the corporation, Jonckheere explained. "Companies that are re-investing earnings in equipment or acquisitions, rather than dividends, are much more likely to remain C corporations regardless of the double levels of taxation," he said.

Practitioners should be sure to verify that all minimum required distributions from retirement and IRA accounts have been made, advised Kathy Seitz Watson, a tax partner at CBiz Accounting, Tax & Advisory of Cleveland Inc. "At least once during each busy season we learn that one of our clients was told to take a distribution but never did it," she said. "So, we always double-check that funds have been withdrawn."

Watson advised practitioners to instruct personnel at doctors' and dentists' offices to inform them if they make large deposits in the second half of December. "You want to pay compensation out of professional corporations, so as not to get hit with the 35 percent tax on personal service corporations," she explained. "This is an excessive tax rate and should never be paid by accident."

Watson suggested that practitioners analyze whether their clients are in an AMT situation to determine whether it makes sense to prepay real estate and state and local taxes.

Much of what Congress does regarding the alternative minimum tax patch will affect the tax season ahead, according to Bob Scharin, editor of Practical Tax Strategies for Thomson Tax & Accounting. "The IRS won't print forms for their computers based on prospective changes," he explained. "Congress told the IRS to assume that they'll take care of it, but it will still impact the ability of the IRS to get the forms completed. They have already issued preliminary drafts of some of the forms."

"The IRS says it will need 10 weeks to reprogram computers to reflect the law change because the AMT affects a variety of calculations," he said. "It's not like last year's last-minute provisions for extenders, because those were more isolated in scope."

"Congress's end-of-year fiddling will cause taxpayers to do a slow burn while they wait for their refund checks," he warned.

The energy efficiency credit for home improvement has a lifetime cap of $500, and applies only to 2006 and 2007 returns, said Scharin. "Return preparers need to look at the 2006 return to determine eligibility before they claim the credit for 2007," he said. "Moreover, only $200 of the credit can be used for windows."

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