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Preparers face a tougher IRS, expiring credits, and
staff shortages on the eve of the 2012 filing season
For more, see our tax Season Kickoff Special
Report, starting on page 13.
BY ROGER RUSSELL
Tighter IRS scrutiny of preparers and
returns, staffing issues and a stagnant economy are facing tax professionals as they ready
their practices for a new filing season.
“There’s been a complete deadlock in tax
legislation,” observed Alan Straus, CPA, JD, a
New York-based practitioner. “Returns this
year will reflect the bad economy — more
short sales and foreclosures, and forgiveness-
of-debt issues. I’ve had a number of them.
The fact that they came up in 2011 means that
we have to report them now.”
Straus explained that some of the issues
this year could get quite complex.
“Clients come in and say, ‘I got this in-
teresting letter from the IRS that says I have
$300,000 of income from cancellation of in-
debtedness — what does that mean?’”
Aside from debts cancelled in bankruptcy
or discharged while the taxpayer is insolvent,
there is an exclusion for qualified principal
residence indebtedness during the years 2007
through 2012. To qualify, the cancelled debt
must have been secured by, and incurred in
the acquisition, construction or improve-
ments of, the principal residence.
“I’m anticipating and experiencing a
highly increased level of IRS scrutiny,” said
Alan Boress, CPA, an Orlando, Fla.- area tax
practitioner and marketing expert. “The IRS
is scrounging for money in ways that they’ve
never done before. They’ve greatly increased
the number of audits on self-employed and
rental property owners. They’re delving down
deeper, to lower levels of income than they
have in the past where they only concentrat-
ed on high-net-worth individuals. They’re
looking for reporting errors and tax abuse.”
Boress said he expects more of this clients
to opt for bankruptcy.
“More of my clients will lose their homes,
with cancellation-of-debt issues. If it’s rental
property and they can show that they’re in-
solvent, they can fill out Form 982 [Reduction
of Tax Attributes Due to Discharge of Indebt-
edness (and Section 1082 Basis Adjustment) ].
This is the accumulated pain of the economy
not recovering,” he explained. “Three fourths
of my business clients were in construction-
related businesses, and now they’re out of
business.”
WEIGHTY ISSUES FOR PREPARERS
There may be a shortage of tax preparers this
year as a result of the new preparer registration requirements, fees, and continuing
education requirements, predicted Chuck
McCabe, chief executive officer of Virginia-based Peoples Income Tax. “Some preparers
are intimidated by the new regulations, as
well as the fees, so some people will be dropping out of the profession and will have to be
replaced,” he said.
The IRS has mandated a 120-question preparer competency test as well as 15 hours of
CPE annually for preparers who are not CPAs,
attorneys or enrolled agents. (See “Preparers
weigh in on PTIN,” page 35.)
“Between now and December 2013 [the
deadline for taking the preparer exam] we’ll
see an exodus of preparers who don’t want
to take the test. The industry has a significant
percentage of elderly tax preparers, and they
That’s why a number of them rely on guerrilla
marketing tactics, because they can’t afford
mass media.”
Finding the right people to prepare re-
turns will be more of a challenge, according
to Sheila Clark, director of operations for The
Income Tax School, a sister business of Peo-
ples Income Tax. “The industry overall will
have issues in hiring preparers that are com-
petent and want to stay in the field because
of the new regulations,” she said. “Based on
what they make during the tax season, it’s
just not worth it for some of them. We have
people who applied for positions and took
our courses, then decided they would rather
continue to draw unemployment because it
was more attractive than working. And we
wonder, do we really want people who have
that mentality?”
GOOD HELP IS HARD TO FIND
Staffing is an issue this tax season, declared
Chris Frederiksen, chairman and chief ex-
ecutive of 2020 Group USA. “Firms are tell-
ing me about the lack of good people: skilled,
experienced and motivated. Outsourcing is
Damien Greathead, operations director for
2020 Group. “Since good people are still hard
to find, it’s a good idea for firms to be well
systemized, especially in the area of utilizing
scan, organize and populate technology to
get the work out the door.”
The merchant card reporting issue, a po-
tential headache for small businesses, has
been put on hold, according to Roger Har-
ris, president of Padgett Business Services.
The law requires the gross amount of report-
able transactions for the calendar year to
be reported on a monthly basis to both the
business owner and the IRS. Since most busi-
nesses just report their net sales, there would
be a mismatch.
‘Some preparers are
intimidated by the new
regulations ... so some
people will be dropping out.’
seem to dislike the testing requirement.”
McCabe said that another challenge for
the independent preparer will be marketing.
“A good tax practice might have a client re-
tention rate of 80 to 90 percent or more, but
they still have to replace 10 to 20 percent of
their clients every year just to break even,”
he explained. “Referrals have always been a
major source, but that might not be enough.
now back in fashion. There’s been an uptick
since last year, as more firms have gotten over
the fright of asking their clients for consent.
They find they can provide better, more time-
ly service with fewer seasonal staff members
through judicious use of outsourcing.”
“Accountants will be faced with mounting
time pressures as their clients take longer to
get their paperwork to their accountant,” said
WILL THEY OR WON’T THEY?
“And end-of-year legislation might play a role
in tax preparation,” Harris said. (As we went
to press, the payroll cut extension passed in
the House but was expected to be defeated
in the Senate, with extenders and the AMT
patch lurking in the background.)
“What scares me is the possibility that they
don’t decide on the payroll tax cut before the
end of the year, and then come back in January or later and extend it,” Harris said. “If they
don’t extend it, we simply go back to the old
rates. I used to think that October was late for
updates to the tax law, but now I think legislation is timely as long as it’s done during the
current year. There are so many things that
you think you know will be extended, but they
haven’t done it, and so there’s a chance that
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