Q:

Subject: tax research

 

Dear Mr. Kerstetter,

 

Hello.  I am a CPA located in Miami, Florida.  This e-mail might sound a little strange but I found your web site, I think via Google, and it appears very informative so I was wondering if I might be able to pick your brain a little.

 

Background – I have about 18 years experience as an accountant but I have not prepared taxes in many many years.  I worked for about 6 years at Coopers & Lybrand in the early/mid 1990s before they merged with PW.  However, I was an auditor the entire time at C&L and did not get a chance to learn corporate/partnership taxation.  I currently work as the CFO/Controller for a medium sized general aviation firm here in Miami.  However, I want to start doing tax returns to make additional income and transition out of the corporate world.  Initially, I would like to become qualified to prepare more complex personal, corporate and partnership returns and maybe eventually do some estate work.  I have purchased the Lacerte tax software and I am currently building a small base of clients.

 

Issues – The main problem is that I have already run into some tax questions that I cannot readily answer.  One question regards a current cash basis C Corp that is interested in converting to a cash basis S Corp (I think this is how I found your company).  Another question is an accrual basis S Corp that wants to convert to a cash basis S Corp.  Another issue that has been raised is how far back can the IRS go to request payroll data – one of my clients lost most of their payroll records from 2002 and prior during a hurricane in 2005 and now the IRS is asking for records for 2000 and 2001.  These are just 3 examples of the questions that I have already run across and I have only been trying to build tax clients for a few months now.  Anyway, my main question is what is the best way for me to research these more complex issues?  How do you do your tax research and what resources do you use?

 

I would greatly appreciate any help and insight you can provide to me as I do not want to erroneously advise these new clients.  Thank you in advance for your help.

 

Best regards,

A:

I used to waste a lot of money subscribing to the expensive tax research services, only to use them maybe one or two times a year.  I have had much better success using the reference books from QuickFinders and the new TaxBook from the former QuickFinder writers.  I use those practically every day.

The message boards on both the QuickFinders and TaxBook websites are very active, with tax pros helping each other answer tricky issues.  You should be able to get a lot of help there.

For the past several months, I also have been subscribing to the TaxCoach Software online service and have found it to have a very useful and growing wealth of information for clients, as well as people to whom I am making presentations.

For the super difficult issues, you may want to consult with a more experienced tax pro.  I pay a tax attorney in Fayetteville his regular rate to help me on cases that go beyond my expertise. Likewise, I have some other tax pros as clients, who pay me my regular rate for advice on how to proceed on sticky cases.

Building up personal knowledge and expertise does take time; but these resources should reduce the learning curve by quite a bit.  I have links to the sites I mentioned in the blogroll on the right side of my blog.

Good luck.

Kerry Kerstetter

One of the many frustrating things about navigating the tax maze is that, with anything that is complicated, IRS won’t tell us how to do it properly ahead of time; just so they can come in later and accuse us of doing it wrong after the return has been submitted.

From the latest issue of Debt Proof Living:

From A Reader:

Subject: open letter to the irs

 

Hi,

I thought you’d appreciate this page that my friend just posted–his ideas about income tax earmarking.

Best,

My Reply:

Thanks for sharing that. 

I’ve written about that kind of fantasy – allowing us to designate how our tax dollars are spent –  a number of times over the past decades.  Several years ago, I even ran a poll of readers asking how they would allocate their tax dollars on a percentage basis for the various governmental agencies.

Unfortunately, I have also had to explain on several occasions that such direct control over how our tax money is spent is impossible under our system  of government.  Under the US Constitution, we have set up a representative republic where the smartest and brightest people among us are elected and sent to Washington DC, where they are authorized to take as much of our money from us as they want and then spend it as they, in their superior wisdom, deem it best. 

Most elected officials will allow certain people to assist them in those spending decisions in exchange for campaign contributions (aka bribes); but as far as what the average taxpayer wants his/her money to be spent on, they couldn’t care less.

IRS has no power over how any of our tax dollars are spent.  They are our rulers’ enforcers and are strictly tasked with using brute force to ensure a steady stream of money flowing in to DC.

While I am foremost in favor of repealing the 16th Amendment and abolishing all income taxes, my second best option would be to have a new amendment that adds a schedule to our tax returns that allows each of us taxpayers to earmark exactly where each of our tax dollars is spent.

That will never happen; but we can still dream.

Thanks again for writing.

Kerry Kerstetter

Follow-Up:

Hi Kerry,

Sadly, I agree with you that congress will never give up control of spending but if you read the proposal carefully, it’s not actually advocating for removing control from the politicians.  Really, all it is recommending is a cosmetic website that will tally “allocations” towards budgetary line items.  The truth is, all budgeting would continue to be in the politicians’ hands (for better or for worse), and all taxes paid would still go into the general fund.  The only real true value of this is increasing taxpayer buy-in and engagement.

It’s the feel-good equivalent of buying a brick on the entry plaza for your favorite ballpark–the truth is, they’re going to spend how they want, and your money doesn’t actually go where you tell it to.  But, the upside is you get a nice memento and a feeling of ownership.

Thanks for your feedback!
Best,

When any of our clients’ stuff is a mess, I don’t just think about it. I let them know they need to straighten things out by using QuickBooks or find another tax preparer. Most of them get their acts together, while the ones who refuse move on to aggravate other tax pros who are more tolerant than I am.