For some preparers, the online Preparer
Tax Identification Number registration was
simple and flawless. For others, it was a real
hurdle, Whitlock said. “If your Social Security
records didn’t match the information you put
on the application, you had a problem,” she
said. “My PTIN was in the name of ‘B. Whit-
lock,’ so the system was locking me out.”
The same problem happened with those
preparers whose records contained a clerical
error, Whitlock noted. “My understanding is
that there were about 3,000 PTINs that were
requested where the date of birth did not
match the Social Security records. In those
cases the IRS could not issue a P TIN until the
records were changed.”
Whitlock said that the IRS is aware of the
problems that practitioners face: “They in-
formed practitioners that if they had applied
for a P TIN before the end of the year but had
not heard back, they could go ahead and use
their existing P TIN or SSN. This is fine, except
that tax preparers are the most compliant
people on the planet. They like to play by the
rules, and it raised the anxiety level for those
who had to go this route.”
The mandatory e-filing requirement, in
place for preparers who will file 100 returns
or more this year, is another potential snag.
“Taxpayers have the right to opt out, but if they
do the burden is on the preparer to have them
sign an acknowledgment, and the preparer
becomes responsible for filing it,” she said.
The last-minute tax law changes, including
the extension of the Bush tax cuts, affected
the start of the tax season because the IRS had
to have time to react to the late changes. The
result is a compression of the filing season,
which most taxpayers weren’t aware of. “
People were upset about not being able to file until mid-February, and it caused practitioners
a backlog because the ones they might have
filed in late January or early February were
delayed,” said Whitlock.
In addition, the changes affecting refunds
had to be explained, she noted. “For example, taxpayers that got refunds because of the
Making Work Pay Credit last year won’t be
receiving it this year. They don’t understand
that it was replaced with a reduction in the
FICA taken out of their paychecks. It’s a bad
economy, and people who were expecting
refunds are upset over that,” she observed.
Mike Solomon, tax partner at the Philadelphia office of EisnerAmper, singled out
the same issues. “The late-breaking legislation and the delay in filing that it generated
caused us to be in a holding pattern for the
first part of the season,” he said. “And if a taxpayer elected to opt out of e-filing, you had
to have them sign a statement. The bottom
Tax Season
FROM PAGE
1
line is there’s pressure on tax preparers to e-file individual returns, and ultimately it will
spread to other returns as well.”
CONFUSION OVER CONVERSIONS
Conversely, some taxpayers have been surprised that they are not able to file electronically this year, according to Barbara Weltman,
a New York-based tax attorney and contributing author of the J.K. Lasser tax books. “For
example, if they’re claiming the First-Time
Homebuyer Credit or the adoption credit,
there are certain papers that have to be filed
with the return,” she said.
There is still much confusion over Roth IRA
conversions from 2010, she explained. “Tax-
payers are confused about whether they are
still able to make contributions if they made
the conversion. The answer is, they can. But
there is still an income limit on contribu-
tions, even though there’s no income limit
on the conversion.”
Another question on Roth conversions is
where a husband and wife both converted
to a Roth IRA. “Do they both have to use the
deferral or can they make separate elections?
The answer is we don’t know,” said Weltman.
“There’s nothing in the code that specifically
prohibits it, but we really don’t know.”
With refund anticipation loan providers
HSBC and Republic Bank on the way out of
the RAL business due to pressure from dif-
ferent federal agencies, some taxpayers will
be shocked that they have to wait extra days
for their refund. Still, most of them do not
mind, maintained Kansas City, Mo.-based
H&R Block preparer Elaine Smith. “When
you tell them about the money they’re saving,
they don’t get upset,” she said. “They can get
their refund via a refund anticipation check
in eight to 15 days. It’s not a loan, but they can
have the refund preloaded on a debit card. It’s
essentially for people who don’t want to pay
out of pocket for their tax preparation.”
MORE INTERACTIVE FILERS
As a result of the poor economy, many more
taxpayers want to get involved in their re-
turns, Smith noted. “More people want the
return process to be interactive,” she said. “In
previous years, they were content to fill out
a sheet and drop off their information. Now
they want to sit down with the preparer, tell
their story, and ask questions. For example,
they may have heard on the news about the
energy credit. They want to know if they
qualify, and what changes are in effect for
next year.”
Overall, tax filing is down compared to the
same point in the season a year ago, although
Liberty Tax filing is up by double digits, said
Liberty chief executive John Hewitt.
Meanwhile, the Federal Deposit Insurance
Corp. has told Republic Bancorp, the main
RAL provider for Liberty and Jackson Hewitt,
that its RALs are “unsafe and unsound” with-
out a debt indicator from the IRS.
COST-BASIS RULES
Although the new cost-basis reporting rules
don’t cover this year’s returns, preparers who
haven’t already explained them to their clients should do so now, said Stevie Conlon,
CPA, Esq., senior director and tax counsel at
Wolters Kluwer Financial Services.
The rules take aim at the practice of deciding after the fact what stock was sold where
an investor holds different lots of the same
stock, each with a different cost basis. For
example, an investor holds three lots, with
a cost basis of $50 for the first lot, $70 for the
second lot, and $100 for the third lot. If shares
are sold for $90, the investor might decide at
a later date which ones were sold — those
with the high cost basis, creating a loss, those
with the medium cost basis, creating a small
gain, or those with a low cost basis, creating
a larger gain.
“Starting this year, investors have to decide
what they’re selling, and communicate this to
the broker immediately,” explained Conlon.
“You have to identify the lots that were sold
no later than the settlement date of sale.”
“Next February, investors will receive a
Form 1099-B showing the cost basis under
that rule,” she said. “It will show the cost basis
that was communicated to the broker by the
settlement date, or the broker will be required
to use FIFO. If what you put on your tax re-
turn doesn’t match, it will be obvious that
you picked a different method after the fact.
There will be taxpayers that are unsatisfied
with both their broker and their tax advisor.”
The issue should necessitate a closer re-
lationship between investors and their tax
advisors. “It requires getting tax advice on
a recurring basis, almost in real time,” said
Conlon. “That’s very different from an ad-
visor’s normal involvement with a client at
year-end planning sessions and tax return
time. The advisor has to be involved at the
time of the trade, and that’s significant.” AT
