by Roger Russell
Confusion over the rate reduction credit and advance refunds, frustration over mid-season legislation retroactive to Sept. 10, 2001, and a greater amount of extensions are typical of the tax season that just ended, practitioners said.
"People had a very cavalier attitude this year. I’ve seen more extensions than ever before," said Holliston, Mass.-based preparer Larry Novick. "They just don’t care so much any more." Novick, an Enrolled Agent, Fiducial licensee and registered representative, said that many of his clients are reprioritizing their lives and focusing more on family and well-being "in this post-9/11 world."
Novick also noticed a decline in the income of a number of clients.
"Last year, I had two dozen returns with six and seven figure incomes due to the exercise of options. But this year, they’re just five figures. Some are still paying off taxes on ISO’s [incentive stock options] but there’s been a big decline in income on W-2s, as well."
A sign of a decline in the economy is the number of clients who used credit cards to pay for their returns, according to Novick. "This year, about three or four times the normal number of customers used their credit cards to pay for return preparation. The same thing happened during the slowdown in the late 1980s. When clients use their credit cards to pay for return preparations, times are tough."
For Frank Grim, a Liberty Tax franchisee with three offices in the Hampton Roads, Va., area, confusion over the rate reduction credit and questionable returns characterized his tax season. "Folks just didn’t understand the rate reduction credit," he said. "That’s where we spent a lot of time, explaining what it was."
Grim said that a number of clients brought in past years’ returns to be checked. "We found a large number of very questionable items. Most were prepared by people who had offered huge refunds in return for a percentage based on the amount of the refund. We had no choice but to file amended returns and report it to the IRS in our area."
One of the scams that Grim uncovered involved Merchant Marines who took per-diem deductions while at sea, even though their meals and sleeping arrangements were provided by the ship. "Someone told them they could take these huge deductions - one of them talks to another and before you know it, everyone in town is doing it."
Frank Ewing of Dallas-based Fast Refunds, found similar reactions from his clients when it came to the rate reduction credit. "People were totally confused. Some of them thought it was like the earned income credit rather than a reduction in taxes."
Despite the confusion, Ewing noted that his clients were more curious about changes in the tax law than in years past. "A lot of them had heard retirement or educational funds, and had questions," he said.
Linda de Marlor, of Rockville, Md.-based Tax Masters, agreed that the rate reduction credit was confusing to her clients. "They didn’t understand it," she said. Moreover, the ones who received rebates either didn’t remember or didn’t want to admit it. They said, 'I’m not going to tell you - you’ll subtract it from my refund.’ One client said, 'If I tell you, you’ll take it away and then I can’t pay you,’" said de Malor.
"A lot of our clients moved this year but didn’t tell us," she continued, "and then they wondered why they didn’t get their refunds."
"No one thinks they’re getting audited this year," de Marlor said. "Lawyers were especially aggressive. We pre-audit returns as we do them to make our clients as audit proof as possible."
One surgeon is richer for using Tax Masters’ services. "He brought in a bunch of unopened mail, and I found four checks which totaled $17,000," de Marlor said.
Her partner at Tax Masters, Connie Kurtz, said that she is shocked by how many taxpayers don’t know the tax law. "It’s unfortunate, because tax is a game, and if you don’t know the rules, you can’t play the game,"
