Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

Archive for January 16th, 2003

Posted by taxguru on January 16, 2003

We Need Patience

I have been receiving a lot of e-mail asking whether or not Bush will be correcting some of the other long overdue problems with our tax system. While nobody wishes for sweeping reform of the tax system more than I do, I am also aware that we got to where we are in slow incremental steps, and drastic changes don’t fly well with the American people. The hue and cry over the seemingly benign issue of removing the double taxation of corporate income shows what an uphill battle we have in undoing decades of growth in the scope, cost and complexity of the tax system.

I am just as disappointed as anyone that Bush isn’t currently pushing as hard for such things as reduced capital gains taxes, removing the insane alternative minimum tax, removing the completely hypocritical limit on deductible capital losses, permanently repealing the estate tax, and really removing the marriage penalty (the provision in his plan only makes a minor token effort on this matter).

I have seen quotes from various GOP rulers who claim that the current tax reduction proposals are only the first step and more will follow. We can only hope that is true. If the JackAss Party remains as disorganized as they currently are, and the GOP can unify behind a tax reduction and fairness theme, we have a good chance of seeing the first positive signs of improvement in decades.


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Posted by taxguru on January 16, 2003

Free E-Filing

In its continuing move to encourage more taxpayers to file their tax returns electronically, IRS has announced that it will allow that to be done for free rather than require people to pay service providers or buy special software for this feature. I have no idea how many of the 78 million people who are supposedly eligible will take advantage of this free capability.

This is as good a time as any to refresh and update everyone on my opinions of electronic tax return filing. IRS is still strongly encouraging tax practitioners to file their clients’ tax returns electronically in order to save IRS processing time. Tax software providers, including the ones I use (Lacerte and ATX), are increasing the e-filing features built into their programs. I am still refusing to partake of this for any of my clients.

Again, it has nothing to do with any fear of new technology. I have always been a very early adopter in the world of high tech. I refuse to have my clients electronically file their tax returns because doing so would increase the chances of their being selected for audits and causing other problems with IRS processing. The format required for electronically filing tax returns does not allow the detailed explanations and heavy documentation that I like to include with all of the tax returns that I prepare. I have been very good at anticipating those items on tax returns that could possibly raise IRS concerns. I then add plenty of additional info to the return to explain to IRS personnel why the numbers are as they are and why they are legitimate. IRS has always accepted those additional explanations and left my clients alone. With e-filing, I wouldn’t be able to do that, putting my clients at additional risk of IRS hassles.

The question comes up as to whether or not I feel threatened by this IRS plan to allow taxpayers to bypass us professional tax preparers. Not one bit. This is no more of a threat to my business than the long time availability of do it yourself tax prep software, such as TurboTax. It is the classic garbage in, garbage out. The tax returns I work on require quite a bit of skill and knowledge as to where and how to enter information.

Tax preparer outfits that are no more than form fillers, with no intelligence or creative input required, will and should suffer from this new IRS feature. I don’t own any stock in H & R Block, but my guess is that this ability for many of its clients to get the same service for free from IRS won’t be a positive development for that company.

While I don’t expect to actually use e-filing for my clients, I may have to sign up with IRS for an e-filing account in order to have access to some of the new web-based features that IRS is going to be unveiling soon. During the IRS webcast a few days ago, the IRS representatives described some improvements to their systems, including allowing us to access taxpayer accounts, obtain new ID numbers and trace payments over the Internet. However, to force those of us who refuse to participate in the e-filing program, the new features will only be available to those practitioners who are signed up as e-filers. I still have to see the details of this and whether it is an empty threat or not before signing up for an account.


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