And so it begins

Spending a beautiful Friday afternoon with four kids running around (only two are mine), I took a moment to check Twitter chatter, and was excited to read (via @taxtweet) "Obama tax reform panel report released." (I realize I am odd to find the news exciting, but accepted my oddity years ago.)

The report arrives 8 months past the original deadline.

Kay Bell and Professor Nellen give us their first impressions, Professor Nellen writing: "This 126 page report does not include recommendations but instead in an analysis of a variety of proposals that have been made by various groups in the past with a brief explanation of advantages and disadvantages of each. So, really nothing new."

I think Professor Nellen is correct that this report doesn't present anything new. I do hope it gets some kind of political attention, and that it gets dialogue started. The preface notes that: "The Board gathered information from business leaders, policy makers, academics, individual citizens, labor leaders, and many others."

There are a lot of smart people with a lot of good ideas, and I'm glad we're at least attempting to gather the ideas in one place.

The introduction to the summary of alternatives for simplification includes this comment: "The complexity of the tax code is partly the result of the fact that new provisions have been added one at a time to achieve a particular policy goal, but with inadequate attention to how they interact with existing provisions."

I liken the tax system to a medical patient who is prescribed a new medication for each new symptom, without being effectively treated as a whole.

Some wish the panel had been allowed to consider broader reform. "We received many suggestions for broad tax reform, and some members of the PERAB believe that such reform will be an essential component of a strategy to reduce the long-term deficit of the federal government. But consistent with our limited mandate, we did not evaluate competing proposals for overarching tax reform in this report."

As much as I believe broad reform is needed, I'm starting to accept the hard reality that people struggle with big change. (I enjoy reading some of the research on change.) If the alternatives are to start with small change or to debate broad reform that doesn't lead to any reform, I'll take the small change, with the hope of building change momentum.

One big change that is listed as an alternative (on page 50) I support wholeheartedly: Repeal the AMT!

I look forward to reading others' thoughts on the report...

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Caution is the better part of valor... sometimes

Back in Ohio, we used to pass a street sign each week that said: "Right turn with caution." (Which was probably safer than "Right turn with abandon.")

My impression is that accountants are a cautious bunch. We like to look before we leap. When we learn in the news of a disaster that could have been avoided with more safeguards, we point to it and say: "See, that's why we need to be careful."

For example, Key Bell shares a report of Donald Bren's $1.4 million federal tax refund stolen by an ID thief. She writes: "While Bren and others at his rarefied income level are an identity thief's dream target, any of us can become victims."

Kay is (as usual) absolutely correct.

David McClure recently wrote on CPATechViews:

I have dropped out of FaceBook, don’t Twitter or Tweet, and refuse to give real information to any web site. And I wipe my cookies and tracker caches every single night. Because I do not want to let advertisers know who I am, where I am or what I am thinking about. That may seem extreme, but you should consider it as well. I’m a pretty stable guy, not a privacy lunatic by any means, but I am scared.

And so as with all things in life, we find ourselves dealing with the gray area. I understand McClure's position, and at the same time am not taking the same position. Perhaps I am setting myself up for trouble by staying active online. But I keep thinking of the Spanish proverb quoted in one of my favorite movies ("Strictly Ballroom"):

"A life lived in fear is a life half lived."

I'm not about to go sky diving or anything, but I'll stick around on Twitter, and hopefully not have my tax refund stolen. (To any ID thieves out there: there's not a whole lot of money to be gained from swiping my name.)

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Dealing with the gray

Joe Kristan writes an interesting post today, discussing a truth that sometimes gets lost in the shuffle: when it comes to the sources of wealth, "It's not just luck."

My client base is made up of of people that are "rich" by Geithner standards. They are small business operators who have achieved a little success in their S corporations and partnerships, generating enough taxable income to put themselves in the top tax bracket. They have had some luck, or at least not catastrophic bad luck, but as a rule they also work very hard. Many have taken huge chances, and some lost almost everything before they finally achieving some success.

As I mused last year, I too am not a fan of blanket statements about the "rich." There are good, hardworking people all across the socioeconomic spectrum. I believe that neither wealth nor poverty is solely a product of luck.

In this world of gray, we as a people somehow have to figure out how to deal with the outliers: the idle rich and the helpless poor. I grow frustrated with the flawed logic that often appears: that all poor people are poor through no fault of their own, that all rich people are lazy and lucky. Some poor people earned their poverty through bad choices; some rich people really did earn their wealth.

An equally flawed logic exists that a purely free market would solve everything. While I'm a firm believer in the invisible hand, I also know that we must address externalities.

Upon mentioning my belief in capitalism, I expect to hear: "of course you support capitalism, it works for you." It's unfortunate that people often attack an argument by attacking a person's motives. The reality is, I'm nowhere near the "rich" levels by Obama standards. My husband has just completed his medical residency, and I've limited my working hours for the past 7 years (since my daughter was born).

I'm the first to admit I've been fortunate. I've also worked hard to take advantage of every opportunity that has come my way. True greatness requires hard work. A lot of wealthy people have worked and sacrificed for what they have.

I hope we can spend less time casting blame, and more time collaborating toward a real solution.

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What did I miss?

It's a gorgeous day here in the S.F. Bay Area, where we've successfully relocated for good. It's good to be back home.

Moving across the country with two small children was an adventure, to say the least, and quite time-consuming. The most painful part was going to the DMV. (Thankfully, I passed the written driver's license test, missing only one. I was nervous when I got to the question about the legal blood alcohol level. I have no idea! I don't drink.)

I'm quite behind on my reading, but am enjoying catching up. I was happy to read that the tax extender bill with the punitive S corporation provision didn't pass. (Covered by such esteemed bloggers as Joe Kristan, Kay Bell, Tax Girl.)

I wonder what interesting tidbit I'll read about next? Hopefully I can get caught up to real time... at least by Christmas.

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Murray Blum for President

I've now been in the S.F. Bay Area for one week; and in addition to loving the lack of humidity and beautiful views, I am noticing how the fiscal troubles of the state seem to come up everywhere I turn.

A friend in law enforcement discussed rumors that Oakland would be cutting 200 officers. A family member working for the state is down to four days a week since weekly furlough days were enacted. The registrar at my daughter's school said the calendar would be changing, as they will be taking furlough days.

My impression is that California, like many people, was not closely watching expenditures when times were good. And now times are not so good. On both the micro and macro scales, we need to make careful, informed decisions about how we spend our money. That requires we take the time to look at where the money is going. This includes where the money goes both via direct spending and via tax benefits, as Professor Nellen points out in a great discussion of Increasing attention on tax expenditures.

Maybe the movie Dave was right, and we just need to get an everyday CPA into the White House to dig through the books.

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Speaking out

Kudos to Joe Kristan for encouraging us to write our senators, and providing links to do so, to speak out against the S corp tax in the extender bill. This is social media at its best. Let's show people that tax folks aren't all that quiet.

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Making headlines

Tax blogger Robert Flach recently mentioned the long-running television series Law & Order. The other day, I heard about a recent episode ("The Taxman Cometh") where the motive turned out to be timing a person's death to avoid the estate tax. (They may have gotten the idea from the Colbert Report.)

Maybe if the estate tax keeps making headlines, it will actually get addressed by Congress. Just maybe...

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The fuzzy definitions

Reading an interesting post today by Joe Kristan got me thinking about how the tax code sometimes wades into murky waters. The world is not black and white, and so I recognize that the tax law cannot be written to clearly cover every situation. That said, I think the law should avoid the gray area when it can.

Joe writes about a new extender bill that would impose self-employment tax on certain S corporation K-1 income. He writes in his post titled Reputation and Skill:

If enacted, as seems likely, this rule would create odd problems.

It would penalize the smallest personal service providers to the benefit of their larger competitors.. A sole proprietorship would pay taxes at a rate at least 2.9% higher than a competitor whose "principal asset" is the reputation of more than three employees.

The bill also will require businesses and the IRS to determine what the "principal asset" of a personal service corporation is. The bill obviously requires the valuation of intangible assets -- reputation and skill -- but in a way not elsewhere attempted in the tax law. How do you do this?

I agree that there are a lot of potential issues involved if the tax law were to require that we determine a monetary value for "reputation and skill."

This reminded me of a discussion in my graduate course on estate and gift tax, taught by the brilliant and engaging Dr. Boyd Randall. He told us about how previous tax law required that the gross estate include the value of gifts "made in contemplation of death." Answer.com echoes what Dr. Randall said:

Because determining whether a gift was in contemplation of death turned out to be subjective, difficult to prove, and somewhat morbid, a 1976 amendment to the estate tax law automatically included any gift that a decedent made within three years of death (26 U.S.C.A. § 2035(a)).

If this professional service S corporation law is enacted, I will be interested to see how we talk about it a few years down the road. I'm guessing we'll say something like: "Because determining the value of a shareholder's reputation and skill turned out to be subjective, difficult to prove, and somewhat arbitrary, a 2016 amended to the tax code eliminated the self-employment tax on professional service S corporations."

I guess I'll just have to wait and see.

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Shooting just around the corner

I just read Peter Pappas' post about a man in Dayton, Ohio opening fire on an H&R Block employee (which he read about on WebCPA). According to Yahoo! maps, the bar where the shooting took place is just over 7 miles from my house. That's a little frightening.

This seems to be a classic example of shooting the messenger (forgive the pun, as I don't know another way to say it!). And as long as the system is out of control, I wager we'll continue to see taxpayers blaming tax professionals. I figure the only way this will slow down is if we get a system in place that is transparent and understandable to taxpayers. We all know it, now we've got to figure out how to make it happen.

A place to start the dialogue is Professor Nellen's 21 Century Taxation blog, which recently celebrated its third anniversary (congrats!). If we can somehow manage to get a lot of us "messengers" in a dialogue and come to some agreement, maybe we could make progress on getting the public and Congress on board with serious reform. Of course, getting a large body of tax professionals to agree on a reform plan is going to take some work. I figure once I get these kids a little older, I'll make that one of my long, long term projects. Someday my kids will thank me for it! Maybe...

In the meantime, I'll be safe from angry Dayton taxpayers when I move to California in a few weeks. Although I'm guessing the taxpayers aren't much happier there.

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Good old stereotypes

Last night, I got a really good laugh out of last week's episode of Parks and Recreation, especially the part where a stereotypical accountant discusses taxes and Quickbooks.

The premise is the town of Pawnee, Indiana holding an all-night telethon. When the scheduled star doesn't show, they get really desperate, and the tax guy in front of the camera is evidence of their desperation. As the accountant drones on: "When it comes to preparing taxes..." the main character then observes: "This is a disaster."

What, people don't think accountants teaching how to prepare taxes makes for entertaining television?

TV really has fun with the accountant stereotype. Kay Bell has blogged about a comedy in the works about IRS agents. I'm guessing they won't all be perky and engaging.

This clip below has the second bit with the CPA, starting at around :50 seconds, as he concludes his "Quick look at Quickbooks." Classic! I just wish I could get both clips of him. (The first clip of him is at around 13:15 of the full episode here.)

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Under Pressure

Dan Meyer of TickMarks pays me a huge honor in yesterday's post: Too Long Between Posts--Apologies ..

I look forward to seeing the posts of Robert Flach (Wandering Tax Pro), Monica Lavwer (Confessions of a CPA and the Tax CPA)and others as they return to blogging after their working hiatus. Major applause to Joe Kristan, Russ Fox and other working tax accountants (yes, and Peter Pappas, Kelly Erb and tax lawyers too) who were able to post in the midst of the maelstrom.

First off, I've got to agree 100% that the practitioners who blogged through the season quite simply rock. They are definitely in a league of their own. And in this league we can't forget Trish McIntire, who's April 14 "A Little Rant" made me smile. Stacie Clifford also managed to keep posting throughout, though she admits most were borrowed from the IRS.

Second, I must say I am pleasantly surprised that Dan would look forward to my writing. Few things feel as marvelous as respect from one's mentors and peers.

Last, but not least, to have my name even listed in such an impressive group, I feel like I better step up my game! It would sure be a shame if, a year from now, bloggers wrote: "Remember that blog that seemed to have good stuff, then completely choked?"

So with that classic CPA perfectionist thought in mind, I thought I'd share one of my favorite songs.

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Tax in real life

We signed the papers to sell our house on Monday, April 19, to our tremendous relief. They had talked about closing on April 15, but fortunately we got an extra couple of days.

While going through the papers, I of course perked up at the tax related stuff, whereas my husband's eyes glazed over. On the form related to the 1099-S (which reports the proceeds), we had to indicate whether we met the qualifications for exclusion of gain on the sale of a principal residence. I admit, I felt very smart when I said to my husband, "This is to determine whether gain qualifies for exclusion under section 121."

I like that, having seen hundreds of escrow statements over the years, I know exactly what I'm looking at when it's my escrow statement. This was one of the many times I'm grateful to know what I do.

The world, especially the world of tax and finance, is a complicated place. Last night, I taught a group of Boy Scouts a little about finance and tax. It was fun, and the kids really responded to it. As many leading thinkers have said before, most young people are not taught about tax and finance. (See James Maule, Marjorie Kornhauser, Taxgirl to name just a few.)

I believe that technology is helping with education, though I don't know if we'll see real progress until society as a whole makes financial education a priority. For my part, I'll just keep teaching small groups where I can, and hopefully spread some financial know-how along the way.

In the end, I think Schoolhouse Rock said it best. Knowledge is power.

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I'm not dead

In the midst of tax season, loved ones may start to worry when they don't hear from us for days on end. Blog readers may also start to wonder where we've disappeared to.

Rest assured, as said in the oh-so-high-class Monty Python and the Holy Grail: "I'm not dead."

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The Three Rules

In (what I'm guessing is) an effort to scare practitioners away from cheating, the IRS announced last Friday that a "Certified Public Accountant has been suspended for twelve months from practice before the Internal Revenue Service by the Office of Professional Responsibility for providing false or misleading information in connection with the preparation of his clients’ tax returns."

Unscrupulous tax preparers come in all kinds: tax attorneys, CPAs, Enrolled Agents (EAs), unlicensed preparers. Everyone should try and avoid a preparer who lacks integrity. Tax bloggers provide good advice for choosing a preparer, including Joe Kristan, Trich McIntire, Bruce The Tax Guy, Robert Flach, Peter Pappas, the IRS Hitman, and many others.

Upon reading the news of this suspended CPA, I thought this might perhaps lead to more debate on the topic of whether a CPA is more qualified to prepare a tax return than an unlicensed preparer. There's been so much written on the topic in the past few months, that I'm honestly not sure where the discussion left off. (One post that includes links to many others can be found at The Missouri Taxguy.)

I posted my thoughts on tax preparer regulation a few months back, and find my opinion has not changed much since then. I do, however, have some new thoughts on the matter of how such a topic is debated.

When reading about this CPA who was suspended, I thought: "Oh dear, I hope people don't start thinking he is representative of all CPAs."

I think most people agree that one bad apple is not representative of the entire bunch. But when in the throws of an argument, we often give undue attention to the one bad apple in an effort to make a point. This happens in debates about matters ranging from types of tax preparer, gender, race, nationality, and perhaps most of all religion. Since people tend to disagree in all such matters, I suggest we can learn from how others address the challenge of engaging in productive debate. Perhaps the most debated topic of all: religion.

The world reknowned theological and scholar Dr. Krister Stendahl is credited with creating Stendahl's three rules of religious understanding, which are:

1. When you are trying to understand another religion, you should ask the adherents of that religion and not its enemies.
2. Don't compare your best to their worst.
3. Leave room for "holy envy." (By this Stendahl meant that you should be willing to recognize elements in the other religious tradition or faith that you admire and wish could, in some way, be reflected in your own religious tradition or faith.)

When considering the strengths and weaknesses of a group of tax professionals, I try to learn about the group from its members, try not to compare the best of one group to the worst of another, and try to stay open to the possibility that another group has aspects that are better than mine.

This may seem to you completely unrelated to the topic at hand, and that is quite all right. I have a tendency to see connections everywhere, and perhaps may even imagine them. I like connecting the dots, even if I'm the only one who sees the line!

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Tax is cool

Now that it's gone away, the estate tax is getting a lot of attention.

Tax experts sharing their thoughts on the estate tax include Joe Kristan, Kay Bell, Linda Beale, James Maule, TaxProf Paul Caron, and I'm sure many others I've missed in my latest search.

But the talk isn't limited to us talk folk. Last week, Stephen Colbert did a bit on the estate tax.

"As of January 1, 2010, the 45% tax on massive inheritances is gone. But it will come back in 2011. So wouldn't this be a great year to visit your lonely, frail, unhealthy uncle? And just be by his side to make sure no one coats his banister with teflon, or hides a rabid badger in his applesauce, or replaces his Werther's Originals with Werther's Explodables."

That's right people, tax is cool.

Here's the clip from The Colbert Report last week. The estate tax bit starts at around 48 seconds in.

The Colbert Report	Mon - Thurs 11:30pm / 10:30c
Colbert Platinum - Estate Tax & Skull Ballot Box
www.colbertnation.com
Colbert Report Full Episodes Political Humor Economy

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The tough choices

(For those who also read Confessions of a CPA, I apologize for the duplicate post!)

As I often observe, time is the most scarce of a person's resources. (Rita Keller shared an interesting post on this topic last month.)

Over the past few weeks, I have fallen behind in even skimming the headlines of the 1000+ contents from my of my 168 subscriptions in Google Reader. With tax season barreling down on me, I've finally admitted to myself that I won't be able to keep up. So much interesting content, so little time!

Today, I created a separate folder in Reader for "Daily Reads," which also shows up as its own list on the right of this blog. It was very hard to come up with such a short list.

Some blogs not on the list are fantastic reads that require a lot of my mental horsepower to follow, and I hope to make more time this summer to summon the brainpower to read them daily. These include the tax and legal experts at such blogs as ataxingmatter, Mauled Again, and TaxProf.

Other blogs not on the list are great reads about the world of finance and accounting, which I hope to revisit with a vengeance after April 15 when I am not required to only live and breathe tax. Some of these include BookMarkLee, The Exuberant Accountant, Jr Deputy Accountant, and many, many others.

So my "Daily Reads" are not a review (though of course I recommend them all), but simply the list of what I think a tax manager like me will religiously follow when time is short.

What are your "can't miss" blogs?

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A recent surprise

After delivering several bags of clothes and household goods to my local Goodwill (in December, not January, of course!), I was surprised when the attendant handed me a pamphlet along with my receipt. The pamphlet, titled Goodwill Stores Donation Information, includes a list of "Suggested Donation Deductions."

I was surprised they provided amounts, as my experience has always been that non-profits avoid providing definitive recommendations for deductions when it comes to non-cash donations. I suppose what surprised me most was that they would actually use the term "suggested." Quite daring!

The additional description was more in line with my expectations of a non-profit: "The Internal Revenue Service allows a deduction based on the fair market value (what a buyer would pay for the goods in a thrift or consignment shop). The better an item's condition, the greater its value... Listed below are resale values of items in area Goodwill stores that you may use to itemize your deductions."

(Just to be difficult, I might argue that it technically isn't the IRS that "allows" a deduction, as the IRS does not make the rules, only enforces them. I know, I'm a pain.)

This description made sense to me, as it seems to be saying only that these non-cash items sell for the prices listed. It's like saying: "This is the information about us, and you can do with it what you choose." To me, that is quite different from providing a "suggestion." But I guess since they included the word "suggested" in the title, they are really doing both: stating facts about their prices and suggesting we use those amounts. I'm splitting hairs, aren't I?

I wish we could get this kind of guidance from the IRS. Or is it available, and I've simply missed it? Everything I've read from the IRS uses vague terms, never providing concrete numbers. And I like numbers.

I wonder if other non-profits are providing "suggested" deduction amounts, and how the IRS will factor that information into its efforts (if at all).

Finally, is it odd that I found so much to think about from a basic pamphlet from the Goodwill?

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You know you're addicted to Twitter when...

You're checking Twitter while sitting in the Orpheum Theater in San Francisco waiting for Wicked to begin.

In my defense, I had not been on Twitter for two weeks. That's a lifetime in tweets.

While waiting for the show to begin, I stumbled upon an update from favorite @taxtweet with a link to her post Another top 12 holiday tax countdown. As she notes, I was lucky enough to make Dan Meyer's Twelve Blogs of Christmas. What a pleasant surprise!

Dan is a blogging veteran at Tick Marks. I'm honored to be included in his list. In all honesty, I fear that it won't be long before top bloggers like Dan and Kay discover my secret: I really don't know what I'm doing out here in the blogosphere.

I owe a few more thanks to people smarter than me who take the time to converse with this blogging novice...

Thank you to Stacie Clifford Kitts at Stacie's Tax Tips for saying I have wit. What a lovely compliment! So much nicer than some of the things my 6 year old says to me.

Thank you to Wandering Tax Pro Robert Flach for giving this "new girl on the block" such a warm welcome. I can even forgive him often calling me Marilyn instead of Monica. :)

Thanks to Joe Kristan for saying my blog is worthy of making Dan's Top 12. I'll take "worthy!"

Happy New Year, everyone!

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