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January

Congressman Grimm Faces Possible Three-Year Term in Tax Case

BY CHRISTIE SMYTHE

 

U.S. Congressman Michael Grimm pleaded guilty to a federal tax charge, taking the possibility of prison time in stride as he told reporters after the proceeding that he won’t give up his House seat.

The New York Republican, who had been accused of hiding as much as $1 million in revenue from a Manhattan health-food restaurant he co-owned, pleaded guilty in federal court Tuesday to one count of aiding in the preparation and filing of a false tax return.

Under his plea deal, he agreed not to appeal if he’s sentenced to 2 years and 9 months or less, according to U.S. District Judge Pamela Chen in Brooklyn, New York. He could also be asked to pay restitution and other penalties at his sentencing, which is scheduled for June 8. He faces a maximum prison sentence of three years, according to Chen.

“As of right now, I’m still in a capacity to serve and that’s exactly what I plan on doing,” Grimm told reporters after the hearing. “I’m going to get back to work and work as hard as I can.”

Grimm, 44, a former FBI agent who represents Staten Island and parts of Brooklyn, was re-elected in November to serve a third two-year term, which would start in January. He won even though he had been indicted in April on 20 counts of fraud, perjury and other charges tied to claims he hid sales and under- represented wages at Healthalicious, a restaurant on Manhattan’s Upper East Side.

Top Democrat

The top Democrat in the U.S. House of Representatives, Nancy Pelosi, called on Grimm to resign even before his plea. Michael Steel, a spokesman for House Speaker John Boehner, a Republican, said there won’t be any announcement until Boehner speaks with Grimm.

Grimm said yesterday that he had spoken with “leadership” about his situation, without providing more details.

Grimm, who oversaw operations at the restaurant before he was first elected in 2010, was accused of concealing under-the-table payments to workers, many of whom were employed illegally, from payroll processing companies.

The congressman said in court that he “underestimated the gross receipts” for the restaurant and “used some of that money to pay employees off the books” as well as business expenses. The charge he pleaded guilty to related to tax information for 2009.

‘Chose Lies’

“With today’s guilty plea, Michael Grimm has admitted that while running his business he chose lies and deception over honest dealings with federal and state authorities as well as his own employees,” Loretta Lynch, the U.S. attorney in Brooklyn, said in a statement. Lynch has been nominated to replace U.S. Attorney General Eric Holder.

Michael Long, the New York Conservative Party chairman, said in a phone interview that constituents are likely to remain supportive of Grimm.

“He won fairly handily and I think he has fairly strong support,” Long said.

The case is U.S. v. Grimm, 1:14-cr-00248, U.S. District Court, Eastern District of New York. (Brooklyn).

—With assistance from Billy House in Washington

 

 

 

Tax Season Opens As Planned Following Extenders Legislation

 

Following the passage of the extenders legislation, the Internal Revenue Service announced today it anticipates opening the 2015 filing season as scheduled in January.

The IRS will begin accepting tax returns electronically on Jan. 20. Paper tax returns will begin processing at the same time.

The decision follows Congress renewing a number of "extender" provisions of the tax law that expired at the end of 2013. These provisions were renewed by Congress through the end of 2014. The final legislation was signed into law Dec 19, 2014.

"We have reviewed the late tax law changes and determined there was nothing preventing us from continuing our updating and testing of our systems," said IRS Commissioner John Koskinen. "Our employees will continue an aggressive schedule of testing and preparation of our systems during the next month to complete the final stages needed for the 2015 tax season."

The IRS reminds taxpayers that filing electronically is the most accurate way to file a tax return and the fastest way to get a refund. There is no advantage to people filing tax returns on paper in early January instead of waiting for e-file to begin.

More information about IRS Free File and other information about the 2015 filing season will be available in January.

 

 

Internet Addiction and its Perils

by Jeff Davidson

 

A wide variety of surveys indicate that Internet addiction is intensifying. Since 1994, the year that popular Internet browsers became widely available for the masses, psychologists have been concerned about the power and appeal that the Internet has over our people.

Add it all up: incessant Web surfing; over-allegiance to discussion groups; fixation on online pornography; gambling and games; music, movie and other media downloading; and a wide variety of other fixations. What comes to mind? A portrait emerges of a society—and indeed a world—sitting on its derriere, breezing through one screen after another.

By some estimates, as many as 10 percent of Web users are living with one or more forms of Internet dependency, which has now been given the name of Internet Addiction Disorder, or IAD. IAD, as acknowledged by the American Psychiatric Association, is characterized by individuals who devote gargantuan amounts of time to online activities to the detriment of their careers, studies, families or loved ones, and social and community participation.

Growing Signs

You don't need a battery of tests to know whether or not the Internet is starting to become intrusive in your life. If you find yourself spending increasing amounts of time online and experiencing a growing sense of anxiety when you're not online, you may be at risk. What's more, the phenomena is not confined to just the Internet. People who check their cell phones, pagers, telephone answering devices, and any electronic information or communication gizmos on a too-frequent basis may be exhibiting addictive behavior. Consider your balance of activities in the last year. Are you spending less time devoted to career, community, social and recreational pursuits because of the amount of time you find yourself online? You know you've gone too far when you're experiencing relationship woes, loss of friendships, loss of sleep, and in particular, career or academic jeopardy.

If you find yourself checking email all day long, or constantly jumping on the Web to catch the news, keep up with some discussion group, or troll your favorite sites, while other aspects of your life get short shrift, it may be time for some self-reflection. The key to overcoming any addiction is to first acknowledge that you indeed are afflicted. Following that acknowledgment, you then have to summon the requisite motivation to change. Without realization and motivation, nothing is likely to happen.

Unquestionably, the Internet is a marvel of our age. The ability to find answers, make connections, order goods, satisfy curiosities and control the vast sea of knowledge contained therein is certainly enticing. It boggles my mind to think what Da Vinci, Newton, Einstein, and other geniuses throughout human history could have achieved aided by the knowledge they gained through using the Internet. At the same time, such geniuses, being all too human, may, too, have fallen into some of the same traps in which we mere mortals now find ourselves firmly ensconced. 

Striking a Balance

The Internet both giveth and taketh away. As with so many aspects of life, the key is to use the Internet effectively to achieve a fine balance. It has become a major, and indeed, vital part of the lives of many of its devotees. It would be hard now to imagine a world in which the Internet does not exist. Since it's here to stay, now is as good a time as any to set some boundaries to help define why, how, and when we're going to use this wondrous technology. First, if this works for you, establish a time limit for daily use. Thirty minutes a day may not be enough; three hours may be excessive. At work, depending on your job responsibilities, all day may be the norm. Thus, your task is to choose the limits for your personal life.

Recognize that excessive Web use may be the indicator of problems in other aspects of your life. Are you devoting time here because there are voids elsewhere? Or are you using the Internet as a tool of procrastination in shirking your responsibilities? If you recognize that you're using the Internet to avoid the challenges of life, shying away from battles that need to be fought, it might be a good idea to speak to a therapist.

Most of us surf the net alone. But if you find reading up on the news or keeping current in some other pursuit is rewarding and enjoyable, you don't have to forsake your family or friends in the process. Can you arrange your space so that you and your significant other, you and your children, or you and others can be online at the same time in close proximity, so that, much like playing cards, you achieve a variation on the theme of togetherness? This may go a long way toward alleviating some of the problems that excessive time on the Internet is causing. In any case, when the measure of your time on earth is finally taken, and you're down to your last few days, how rewarding will it be to reflect back on the several thousand hours a year you averaged on the Internet over the course of your life?

About the Author

Jeff Davidson, CMC, MBA, is The Work-Life Balance Expert®. A speaker at many large companies, Jeff believes that career professionals today in all industries have a responsibility to achieve their own sense of work-life balance. He supports this quest through his websites www.BreathingSpace,com and www.Work-LifeBalance.net. Jeff can be reached atjeff@breathingspace.com.

Source: micpa.org/news

 

 

 

Six Steps for Managing Fear and Anxiety

by Jude Bijou

 

All of us, at some time or another, experience fear and anxiety. We worry about our teenager driving at night. We fret about whether we'll be laid off. We fear the worst when we notice an odd lump or feel a shooting pain.

Most of the time, however, whatever we fear doesn't happen. Our teen arrives safely home. There's no pink slip in our pay envelope. And the lump is benign and of no concern.

Nevertheless, life is filled with unknowns. And it's hardwired for the body to go into its fear physiology when it feels as if its survival is threatened. Few among us are able to calmly tolerate the big "what ifs" that enter our thoughts every day. Since we can't control what pops into our brain, we have to learn how to control how we respond to those body sensations and those fearful, fretful and anxious thoughts.

Managing Your Fears and Anxiety

Here are six highly effective techniques to help you let go of fears and worry that can otherwise turn into disabling phobias and serious anxiety if not addressed head-on. 

1. Release the emotion. Scientists understand that emotions are physical — pure energy that's produced by our brain. When we feel an emotion like fear, we experience physical symptoms, such as fast heartbeat, shortness of breath, or stomach upset. You can release fear physically and constructively by shivering and quivering, like a dog at the vet. Let your whole body do what it wants to do: shake and tremble. Do it with vigor, and even better, accompany it with a verbal outburst, eeek or brrrr, and very quickly you will notice that your symptoms of fear are diminished or gone.

2. Restore your perspective. Next, use conscious thinking to interrupt repetitive, fear-based thoughts going on in your head. Say to yourself, "Everything is all right," "Everything will be okay," "One thing at a time," "Be here now," or "I can handle this." Even though you're the one telling yourself these truths, positive self-talk and reassurance really do change your attitude and pacify your body. Keep interrupting the old and remembering the reality.

3. Look within for the right action. Often, fear is just something in our thoughts that requires no action. But sometimes we can relieve the anxiety and physical sensations by pausing and asking within what action needs to be done. Maybe it's taking a "fear of flying" course, talking to your mate, asking your boss for help, or learning to meditate. Ask yourself if there's any action called for — and listen. Your heart will guide you well. 

4. Make a list of what needs attention. Usually, fear is a sign that some things in our life need attention. It's helpful and grounding to write down the top priorities in your life right now, or all the things you need to do. You may discover that the fear and worry you're experiencing has to do with something else entirely. For example, you're fearful about your financial future, yet you've been putting off taking that last semester of courses to earn your Master's degree. Having that degree would open up new career possibilities and relieve some of your financial fears. Look at your list, prioritize the items, then just do one thing at a time. 

5. Stay specific, don't globalize. When we give in to fear, we tend to feel worried about lots of things. For example, we can't pay one bill this month, and suddenly our fear spins out a novella about getting evicted, becoming homeless, and losing touch with all our loved ones. Instead, take one issue at a time—such as that bill—and address it as a single obstacle or challenge that needs your attention. The devil is in the details, so stay specific and present, and your fear will take a back seat.

6. Give yourself encouragement. Keep offering praise for each little step. Say, "Good for me." Giving yourself this recognition feels like a small victory. This is what courage feels like; it feels like overcoming, being resilient and pushing through. Your fearlessness will grow. 

With every step you take to manage and work through your fear, remember to stay true to your heart. If something feels off, untrue, or unhelpful, don't do it. Your heart will never lead you astray. When you can't hear what your heart is saying, deal with the physical body sensation of fear, shiver and shake, and listen again!

About the Author

Jude Bijou, MA, MFT is a respected psychotherapist, professional educator, and consultant. Her theory of Attitude Reconstruction® evolved over the course of more than 30 years as a licensed marriage and family therapist, and is the subject of her multi-award-winning book, Attitude Reconstruction: A Blueprint for Building a Better Life. Learn more atwww.attitudereconstruction.com.

Source: micpa.org/news

 

 

Obama Proposes Tax Increases on Wealthy to Aid Middle Class

BY RICHARD RUBIN AND MARGARET TALEV

President Barack Obama is proposing new taxes on the wealthiest Americans that would limit their profits from investments and make it harder for them to pass assets to heirs.

Obama, who will promote the plan during his Jan. 20 State of the Union Address, will use much of the proceeds—$320 billion over 10 years—to expand tax credits for higher education and child care and create a new break for two-earner couples. The White House released details of the plan Saturday.

“What you’re seeing here is really dedicated middle-class tax relief to really get at that problem of middle-class wage stagnation,” said Harry Stein, director of fiscal policy at the Center for American Progress, a Washington group aligned with Democrats.

Obama’s tax plan faces opposition in the Republican-controlled Congress, where lawmakers want to cut tax rates and curtail targeted breaks. The two parties agree more on business tax changes, though an accord on that isn’t close.

“Slapping American small businesses, savers and investors with more tax hikes only negates the benefits of the tax policies that have been successful in helping to expand the economy, promote savings, and create jobs,” Republican Orrin Hatch, the chairman of the Senate Finance Committee, said in a statement Saturday. “The president needs to stop listening to his liberal allies who want to raise taxes at all costs and start working with Congress to fix our broken tax code.”

Two-Year Agenda

The president’s address is intended to lay out an agenda for his final two years in office and help the Democratic Party retain the White House in the 2016 election with a legacy of policies that appeal to middle- and lower-income voters, who continued to lose ground as the economy rebounded from the recession.

He would increase the top tax rate on capital gains and dividends to 28 percent from 23.8 percent. The rate was 15 percent when Obama took office in 2009, meaning that he’s proposing to almost double it over his two terms in office.

He would also impose capital-gains taxes on asset transfers at death, ending what the White House calls “the largest capital gains loophole.” Under current law, assets held until death aren’t subject to those levies, creating an incentive for wealthy people to hold onto them. Heirs only have to pay capital-gains taxes when they sell and only on the value above what the assets were worth at death.

Speech Preview

Obama has been previewing his proposals over the past 10 days in speeches around the country. In addition to the tax plan, he said he will push Congress for legislation allowing workers to earn seven days of paid sick leave per year and make community college free for millions of students, at a cost of $60 billion over 10 years.

Obama, who has consistently advocated for tax increases on the wealthy and tax cuts for middle-income families, is offering more of both in the tax plan released Saturday. He is layering new proposals on top of others that Congress has ignored or rejected.

‘Outdated Code’

Spokesmen for House Speaker John Boehner and Senate Majority Leader Mitch McConnell both criticized the plan.

“Republicans believe we should simplify America’s outdated tax code,” said Don Stewart, deputy chief of staff for McConnell. “Tax reform should create jobs for families, not the IRS.”

The administration’s proposal on capital gains at death would exempt the first $200,000 in capital gains per couple plus $500,000 for a home, along with all personal property except for valuable art and collectibles. The rest would be treated for income-tax purposes as if it had been sold.

The plan would also delay taxes on “inherited small, family-owned and operated businesses” until the business is sold and let any closely held businesses spread the taxes over 15 years.

According to the White House, 99 percent of the tax burden from the capital-gains proposals would be paid by the top 1 percent of households, and more than 80 percent would be paid by the top 0.1 percent.

People with significant amounts of unrealized gains include founders of successful businesses and others who inherited businesses decades ago.

More Owed

Even with the limits, the changes would create new tax burdens for some families that are exempt from the estate tax under laws Obama signed, which limited the tax to couples worth more than $10.86 million.

As a simplified example, consider a couple who died with $5 million in assets, including $2.5 million in stock with a basis of $500,000. Under current law, they could pass that to their children with no taxes. Under Obama’s plan, they could owe about $500,000.

The White House dubbed the break the “trust fund loophole,” though it is used by people without trust funds.

“That’s an extremely powerful planning tool,” Stein said. “And you can still access income from unrealized capital gains’’ with loans.

Obama is also renewing and expanding an earlier proposal for a fee on the liabilities of about 100 financial institutions with assets exceeding $50 billion.

Expanded Breaks

This year’s version is a seven-basis-point fee on their total liabilities and would raise an estimated $110 billion over a decade. The new version of the tax has a lower rate, a broader base and would raise about twice as much money as before.

It would apply not just to bank holding companies and the narrower set of financial institutions included in last year’s plan. Instead, it would now affect asset managers and insurance companies, said a senior administration official, who spoke on condition of anonymity to describe the plans before the speech.

Obama would use the proceeds from the tax increases to expand breaks for lower-income and middle-income families.

In 2007, when Obama started running for president, the middle 20 percent of households had an effective federal tax rate of 14.4 percent and the top 1 percent paid 27.4 percent, according to the Tax Policy Center. By 2014, the middle-class rate had declined to 13.7 percent—it was lower during the recession—while the wealthiest were paying 33.4 percent.

Child Care

The newest part of that plan is a $500 tax credit for married couples when both spouses work, an attempt to combat the reluctance of lower-earning spouses to work because their income is taxed at marginal rates for the combined couple.

The full tax credit would be available for couples with incomes up to $120,000 and those earning up to $210,000 would get a partial credit.

Obama would also triple the maximum tax credit for child care to up to $3,000 for children under 5. The government would effectively pay half of the first $6,000 of child care per child for some families. The maximum credit could be claimed by families making as much as $120,000.

Neither the second-earner credit nor the child-care credit would be refundable, the official said, meaning that they would only benefit families with income-tax liability.

As part of those changes, Obama would repeal flexible spending accounts for child care, which let people set aside up to $5,000 a year before taxes. Because those function like deductions, the accounts are more valuable to families with higher incomes and marginal rates.

Retirement Plans

Obama would also consolidate several education tax breaks into a single tax credit worth up to $2,500. Part-time students would be eligible for a partial credit.

He is also proposing to end taxation of some student loan debt forgiven under income-based repayment plans. To help pay for that, Obama would repeal the deductibility of student loan interest for new borrowers.

The plan announced Saturday also continues two past Obama ideas on retirement policy. He wants to require companies to automatically enroll workers in individual retirement accounts. And he wants to limit contributions to tax-advantaged retirement accounts for people who have about $3.4 million in them.

Some of those ideas—the bank fee, consolidating education credits and breaks for two-income households—have had bipartisan support, with differences on the details.

Even so, most of them are unlikely to advance in a Republican-controlled Congress.

Push Comes to Shove

Representative Paul Ryan of Wisconsin, who is chairman of the House Ways and Means Committee, told reporters Jan. 15 that Republicans wouldn’t be able to undertake the “full-throttle tax reform” they wanted to pursue because of Obama’s opposition to cutting marginal tax rates for individuals.

Senator John Thune, a South Dakota Republican, said Republicans were interested in making the biggest tax code changes since 1986 and are looking to Obama to work with them.

“So far what we’ve seen is the White House and the president have expressed interest rhetorically in the issue of tax reform,” he said at the party’s retreat Jan. 15 in Hershey, Pennsylvania. “But when push comes to shove, really engaging the Congress—we’ve not seen that.”

Following his State of the Union speech, Obama plans to promote the initiatives in two Republican-dominated states, Idaho and Kansas. He’ll speak at Boise State University on Jan. 21 and at the University of Kansas in Lawrence the next day.

—With assistance from Billy House in Hershey, Pennsylvania.

 

 

States Tax Poor More Heavily than Ultra-rich

By Michael Cohn 

A new report finds that every state tax system, with the exception of the District of Columbia, taxes its poorest residents at significantly higher tax rates than the wealthiest 1 percent of taxpayers.

The report, from the Institute on Taxation and Economic Policy, is the fifth edition of the nonprofit research organization’s "Who Pays?" report examining tax systems in all 50 states and the District of Columbia.

The report found that the lowest-income 20 percent of taxpayers pay an average state tax rate of 10.9 percent, as opposed to 5.4 percent for the top 1 percent of taxpayers.

When all state and local income, property, sales and excise taxes that Americans pay are considered in combination, the nationwide average effective state and local tax rates by income group are 10.9 percent for the poorest 20 percent of individuals and families, 9.4 percent for the middle 20 percent and 5.4 percent for the top 1 percent.

In the 10 states with what the researchers consider to be the most regressive tax structures, the bottom 20 percent pay up to seven times as much of their income in taxes as their wealthy counterparts. Washington State is the most regressive, according to the report, followed by Florida, Texas, South Dakota, Illinois, Pennsylvania, Tennessee, Ari¬zona, Kansas, and Indiana.

Six of the 10 most regressive states get approximately half to two-thirds of their tax revenue from sales and excise taxes, compared to a national average of about one-third. The report noted that five of those states do not levy a broad-based personal income tax (four do not have any taxes on personal income and one state only applies its personal income tax to interest and dividends) while four have a personal income tax rate structure that is flat or virtually flat.

The authors of the report believe that state personal income taxes are typically more progressive than the other taxes that states levy, such as property and consumption taxes. Sales and excise taxes are the most regressive, with poor families paying nearly eight times more of their income in these taxes than wealthy families, while middle-income families pay¬ five times more. Property taxes are typically regressive as well, according to the report, but less so than sales and excise taxes.

 

 

Average Tax Prep Fee Inches Up to $273

BY MICHAEL COHN

The average fee for preparing a tax return, including an itemized Form 1040 with Schedule A and a state tax return, will increase a few dollars to $273 this year, a 4.6 percent increase over the average fee of $261 last year, according to a survey by the National Society of Accountants.

The figure also represents an 11 percent increase from two years ago when the survey was conducted.

The average cost to prepare a Form 1040 and state return this season without itemized deductions is expected to be $159, also a 4.6 percent increase over the average fee last year, which was $152. It is an 11.2 percent increase from two years ago.

“When you consider that it takes the average taxpayer five hours to complete a tax return, this is a very strong value,” said NSA executive vice president John Ams in a statement. “The tax code continues to become more complex each year, including some new Affordable Care Act reporting requirements. Professional tax preparers may also be able to find tax deductions and credits that may taxpayers might not notice.”

The NSA collected the fee information during a survey of preparers. The tax and accounting firms surveyed are owners, principals, and partners of local “Main Street” tax and accounting practices who have an average of more than 27 years of experience.

NSA member tax preparers typically hold multiple credentials that demonstrate their expertise, including Enrolled Agent, CPA, Accredited Tax Preparer, Accredited Tax Advisor, and others.

The survey also reported the average fees for preparing additional Internal Revenue Service (IRS) tax forms, including $174 for a Form 1040 Schedule C (business), $634 for a Form 1065 (partnership), $817 for a Form 1120 (corporation), $778 for a Form 1120S (S corporation), $457 for a Form 1041 (fiduciary), $688 for a Form 990 (tax exempt), $68 for a Form 940 (Federal unemployment), $115 for Schedule D (gains and losses), $126 for Schedule E (rental) and $158 for Schedule F (farm).

The NSA noted that the fees vary by region, firm size, population, and economic strength of an area.

The average tax preparation fee for an itemized Form 1040 with Schedule A and a state tax return in each U.S. census district are:

•    New England (CT, ME, MA, NH, RI, VT) – $246

•    Middle Atlantic (NJ, NY, PA) – $314

•    South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV) – $268

•    East South Central (AL, KY, MS, TN) – $262

•    West South Central (AR, LA, OK, TX) – $205

•    East North Central (IL, IN, MI, OH, WI) – $240

•    West North Central (IA, KS, MN, MO, NE, ND, SD) – $198

•    Mountain (AZ, CO, ID, MT, NV, NM, UT, WY) – $256

•    Pacific (AK, CA, HI, OR, WA) – $348

Most accounting firms offer prospective clients a free consultation, the NSA pointed out, which can be worth well over $100 based on the hourly fees of most tax preparers.

All the fees cited assume a taxpayer has gathered and organized all the necessary information.

Taxpayers should also make sure they provide information on time to avoid additional fees, the NSA noted. Many tax preparers will charge an average fee of $114 for dealing with disorganized or incomplete files.

Some will charge an average fee of $42 to file an extension, an average fee of $88 to expedite a return, and an average fee of $93 if information is not provided in advance of an agreed-upon deadline. For taxpayers who are audited by the IRS, the average hourly fee to handle the audit is $144.

 

 

Senators Unveil Bill to Regulate Tax Preparers

BY MICHAEL COHN

Two Democrats on the Senate Finance Committee have introduced legislation to regulate paid tax preparers in response to the federal court decision that found the Internal Revenue Service had exceeded its statutory authority in regulating preparers.

Senate Finance Committee ranking member Ron Wyden, D-Ore., and Senator Ben Cardin, D-Md., unveiled legislation Thursday that provides the Treasury Department and the IRS explicit authority to regulate paid tax return preparers. Wyden chaired the committee until control of the Senate changed after last November’s elections.

With nearly half of all Americans turning to others to prepare their tax filings each year, the bill would require preparers to demonstrate competency in preparing tax returns, claims for refunds and related documents.

 “It’s bad enough that taxpayers have to navigate their way through an overly complex tax code, but worse that many also unknowingly rely on fraudulent or incompetent tax preparers to help with their returns,” Wyden said in a statement. “This bill helps protect hard working taxpayers by ensuring that tax preparers are held to clear and enforceable standards.”

The legislation was introduced in response to the decision in the case of Loving v. IRS. Judge James E. Boasberg of the U.S. District Court for the District of Columbia ruled in 2013 that the IRS had exceeded its statutory authority in imposing mandatory testing and continuing education of independent tax preparers as part of its Registered Tax Return Preparer Preparer regime. A federal appeals court upheld the decision last year. In response, the IRS has introduced a voluntary program for continuing education and testing of preparers known as the Annual Filing Season program.

The legislation introduced by Wyden and Cardin aims to give the IRS the statutory authority that the courts said it lacked. The IRS had argued that it had the authority under an 1884 law that was originally intended to apply to federal regulation of compensation claims for dead horses killed during the Civil War, but the judges disagreed. The court decision invalidated the IRS’s RTRP program, which aimed to regulate unenrolled preparers who are not already regulated under the Treasury’s Circular 230 rules. Those rules still apply to tax practitioners such as CPAs, Enrolled Agents and attorneys who are authorized to represent clients before the IRS.

“Our tax code is complicated,” said Cardin. “To protect taxpayers from incompetent or unscrupulous preparers, the IRS needs adequate tools to ensure that preparers are qualified and held accountable. I’m pleased to join in support of this legislation, which restores meaningful and much-needed standards and oversight in the paid preparer industry.”

 

 

Sustainability: How CPAs Can Benefit

BY SEAN STEIN SMITH

Sustainability, eco-friendly business models, and the continuing integration of environmental matters into business operations are hot topics of conversation and debate in business media.

One high-profile example of sustainability in business is General Electric, which launched an entire business division in 2009, called Ecomagination, to capitalize on this growing megatrend.

Since its implementation, the division has generated billions in savings for the multinational and continues to serve as an innovation hub for the organization at large.

While environmental disasters and controversial business models such as fracking continue to dominate the conversation related to sustainability and environmentally friendly business practices, there is a much broader debate occurring. The benefits of sustainable business practices include reduced energy costs, higher usage of recycled materials, and re-use of scrap materials from in-house projects and processes.

Against this framework, and the increasing engagement of environmentally oriented regulators and nongovernmental organizations, it is clear that the business case for sustainability is growing. To become a viable business conversation, however, sustainability requires buy-in and legitimacy in the form of standard evaluative tools and business assessments. In essence, sustainability must evolve to be treated like any other strategically important initiative.

As organizations come under pressure internally and externally to simultaneously improve financial performance and remain eco-friendly, they must be able to quantitatively evaluate different options. Capital, although freely available to organizations in the historically low-interest environment that currently exists, must be deployed carefully by management teams.

Sustainability, the "triple-bottom-line" and other environmentally oriented terms and ideas can be implemented with labels such as "strategic," "long-term" and "investments," which can be used to obscure the lack of available data on the end results of such ideas.

CHALLENGE AND OPPORTUNITY

The challenge is, how do organizations objectively evaluate and report on sustainability and other environmentally oriented initiatives? This creates an opportunity for CPAs, who are well regarded as guardians of financial information, to apply their existing skills to the development of metrics and reporting for sustainability initiatives.

CPAs are already well regarded as gatekeepers of financial and quantitative information, and this role is continuing to evolve along with the economy as a whole. As management teams strive to increase efficiencies and results, while simultaneously keeping costs low, an opportunity emerges.

The ability to create and communicate business solutions that encompass several functional areas, while maintaining proper controls over the processes involved, is a result of the fluidity that now characterizes the work of many accountants.

Business itself, as well as the marketplace, have evolved and continue to do so. Sustainability and the demands related to it are simply one of the current manifestations of this decade-long trend.

A key benefit that the involvement of accountants can have is to assist with the transformation of sustainability from the realm of corporate social responsibility firmly into the conversation of business decisions alongside capital projects and IT investments.

Sustainability and non-traditional reporting methodologies in general require the development of comprehensive frameworks in order for management to make the right decisions. In addition to the creation of metrics and frameworks that assist with the qualitative decision-making process, organizations also must be able to evaluate the success (or failure) of these programs.

Finance and accounting offer a common language that enables organizations and managers from completely different industries to communicate and compare information. Accountants, by virtue of their education, training and continued work with other functional areas, are uniquely positioned to bring insights from across the business to help develop the standards and metrics necessary to enhance the business case for sustainability.

FIRST STEPS

Let's take a look at a few steps and ideas that can assist this process:

1. Think of sustainability like any other capital project -- i.e., these initiatives will take time to bear fruit and show results.

2. Build a business case for the initiative. What does this concept add to the business? How can the organization relay the initiative to consumers and regulators to maximize the business benefit?

3. What resources are needed for a task, such as setting up a budget for the project? This helps management evaluate the initiative like any other large project, which further moves sustainability into the mainstream.

4. If best practices or a regulatory body exist, that information should be leveraged to help create standards. Sources such as the Sustainability Accounting Standards Board are excellent examples of the proliferation of sustainability accounting standards.

5. Using the information from the above four areas, assemble metrics to examine and analyze exactly what the organization is looking for from this project -- utility savings, decreased carbon dioxide emissions, higher percentages of used or recycled materials, or conversion of transportation vehicles to eco-friendlier options such as ethanol or natural gas.

To sum up, the accounting profession and accountants should take both the technical knowledge obtained via training and continuing education, as well as real-world experience from working with different functional areas, to create standards and metrics capable of tracking the business performance of sustainability initiatives.

Obviously, the specific metrics and evaluative tools deployed will differ from industry to industry, and even from company to company. But the potential for accountants to play a pivotal role in the development and implementation of sustainability and environmentally related reporting and assurance standards is clear.

Sustainability can be good for the environment, good for business, and good for the profession.

Sean Stein Smith, MBA, CPA, CMA, CGMA, is senior accountant in environmental services at United Water in Harrington Park, N.J., and an adjunct faculty member at Fairleigh Dickinson University.

 

 

 

It's Not the Technology

Information technology security is mostly a people issue

BY SETH FINEBERG

Being connected to the office and clients has also placed firms and clients more at risk than ever for a data breach, as has the reluctance of some to upgrade to newer, comparatively secure systems. However, these days the greatest threat to any firm's or client's data lies in processes, and not technology itself.

Public security breaches and data theft examples such as Target, Home Depot and most recently Sony did not happen overnight or by hacking a firewall. In fact, data security experts say that these took months and likely began by simple human error.

Statistics indicate that it is not about to get any easier for businesses and firms to protect themselves, either. A study released in September by the Ponemon Institute, which conducts independent research on privacy, data protection and information security policies, found that 43 percent of companies had experienced a data breach in the past year. The report on data breach preparedness indicated that this was a 10 percent rise from the year before.

Big Four firm PricewaterhouseCoopers' annual Global State of Information Security survey showed even more disturbing results, with survey respondents in 2014 reporting that the number of detected data breach incidents soared to a total of 42.8 million, a 48 percent leap over 2013.

EASE OF ABUSE

What is most alarming to firm data security experts like Ken Pyle, who conducts IT consulting through Bowman & Co., is how easy it is to both cause and prevent such breaches from occurring. Pyle noted that simple, daily activities that CPA firms engage in leave data most at risk. "Firms are giving away tons of information every day and don't know it; they publish PDFs and the metadata on those files has information about the machines or the IT environment," said Pyle.

Pyle said that the easiest way to prevent sensitive data in a PDF from being discovered is by clearing that data before posting or sharing it. This can be done by right-clicking (or holding the Command key and clicking) on the document, viewing the properties and details, and removing the hidden information.

Mobile devices, particularly Android phones, are also easy targets for hackers, Pyle noted, as there are Web sites where both good and malicious hackers can go to view activity on a given device. Vulnerability happens, for example, if someone is using their Android phone for work and shares a photo of a document with a client.

Pyle stressed that the most common portal for hackers these days is e-mail. "We spend so much time on firewalls, we don't realize that we're most vulnerable through e-mail -- getting users to click on links that look remotely legitimate is doing the job," he said. "If I am a hacker and have an e-mail address to try, I have a way to attack. It's not hard to send phishing e-mails out; spam filters do complicate things, but if someone's committed, they can get around it. The more things people open, the more access I can gain as a hacker, and once I have a foothold in your perimeter, it's only a matter of time before I can get into the firm and its data."

THE PEOPLE PROBLEM

IT security experts agree that technology alone simply cannot abate attacks on a firm's infrastructure and attempts to procure data. Moreover, with people being the largest threat to sensitive information, consultants and IT leaders are looking to increased training to help stem the flow of data leaks and breaches.

David Barton, a managing director at Top 100 Firm UHY Advisors and an IT services expert, often speaks to firms and at industry events about the security risks they face on a daily basis. He finds that as often as he delivers a similar message, it needs to be repeated.

"The point I make lately is, 'Are we insane?' Doing the same thing over and over and expecting different results. This has gone on in IT security over the past 20 years, adding more technology solutions for a problem that is not strictly technology," said Barton. "Look at Target and Home Depot. In both cases, [hackers] got in because somebody likely clicked on or imported something they shouldn't have. The only way to really stop that is through training, and [your firm should be] regularly having exercises whereby you regularly teach them not to click through on links or visit suspect sites or download unknown items."

But Barton does not want firms - particularly small to midsized firms - to abandon technology to help stem the flow of security hacks, but rather to keep up with where other firms are moving. He specifically recommended moving relevant functions to the cloud and doing a legitimate risk assessment on those service providers in the process.

"Training is important, but the fact of the matter is most accounting firms wouldn't know where to begin to deliver a high level of training, so they need to get into the idea of outsourcing that task," said Barton. "We tell our clients, 'Don't do your own taxes, we're the experts.' In the same light, firms shouldn't be doing their own IT security and they shouldn't be afraid to use outside services for cloud and IT security."

For larger and growing firms that have full-time IT staff, the challenge is in the numbers: the more people and more devices they want to work on, the greater the risk to firm and client data. This is why an IT leader like Jeff Bathurst, chief information officer of Sparks, Md.-based Top 100 Firm SC&H Group, focuses on year-round training programs for the firm's 200-plus staff, which is an evolution of the once strictly gatekeeper role he and others like him once had.

"Because technology does so many things, IT leaders become more internal consultants. I don't want to control what you do, but I want a conversation because I am responsible for the security of that information," said Bathurst. He notes that, in addition to trying to direct employees in the right way to deal with current technology, he offers advice on the positive and negative aspects of using modern devices and services. For example, he notes that moving certain functions to the cloud is "far more secure" than anything on a local server or desktop. E-mail, backups and certain types of file exchange are "the right approach" for using the cloud.

All of these functions, however, come with caveats. "Using the cloud is about the right approach for the right application, mostly the things that are commodity services [like e-mail and data backup], is where you want to go," said Bathurst.

EXPLORING THE CLOUD

Many smaller firms, like Woodland Hills, Calif.-based Kaufman & Seargeant, are moving nearly all of their functions to the cloud for convenience and work flexibility, specifically those that want to serve clients around the country. Jeff Seargeant, the firm's co-founder, also made the move - albeit a gradual one -- for security purposes as well.

"We realized about three to four years ago that the concept of having your own server, trying to manage that and finding local IT firms to help maintain that, was challenging," said Seargeant. "We do client accounting services, we are experts there and we tell our clients that we can do this task better than any employee can. We made the decision to outsource our data and functions in a similar way to an expert."

Seargeant's firm had the majority of its functions outsourced to a hosting firm, with servers in the Seattle area. He claims this has been working out, but is in the process of moving to more direct cloud vendors, including eFileCabinet for file storage, as well as Intacct and QuickBooks Online for client accounting functions.

"We will likely keep some things with our hosting service in Seattle, but letting the top in the field worry about the data security is better," said Seargeant. "We had too many clients with their own servers getting hacked, doctor offices and the like. At some point you have to wonder, how invested is the local IT guy in your practice? Making the move to cloud services was best for us and our clients."

While moving a firm's functions to the cloud is not a move to be taken lightly or without research, it is one that IT consultants like David Cieslak of Arxis Technology Inc. are advising more firms to make for the sake of security. His firm is often called in to assess a CPA firm's IT infrastructure.

"From our point of view, cloud-based services are very helpful because they have two-factor verification and if some local device gets clobbered with malware, it won't come back and infect the host service you work with," said Cieslak. "With CPA firms, there's a heavy reliance on applications that aren't hosted or in the cloud, and it's frustrating. There's an over-reliance on old technology, and at this point it's unnecessary and unsafe for them and their clients," he said. "A perfect example is when you hear firms saying how awful Windows 8 is -- you have to put your palm to your head, because right now it's the most secure operating environment they've ever come out with. It's one thing to say you are not making [new technology] available to your firm to be more efficient and safe, but you are placing your clients at notable risk as well."

 

 

IRS Auctions Darryl Strawberry’s Mets Money

BY ROGER RUSSELL

IRS PALS (Property Appraisal and Liquidation Specialists) has auctioned off Darryl Strawberry’s contractual right to receive payments under his deferred compensation agreement with the New York Mets.

Strawberry owed a tax debt for the years 1989, 1990, 2003 and 2004. The District Court for the Northern District of Florida ruled last month that the U.S. had valid and subsisting federal tax liens against all property and rights to property belonging to Strawberry, including the right to receive payments under the deferred compensation agreement (see IRS to Auction Darryl Strawberry’s Deferred Comp).

The minimum bid for the sale was $550,000, while the winning bid was $1.3 million. The winner, who wished to remain anonymous, will receive $8,891.82 a month for the next 18 ½ years.

“Given a sale price of $1.3 million, the annualized rate of return on the investment for the winning bidder is about 4.86 percent,” said actuarial analyst Brian Haubert.

 

 

Congress's New Math on Tax Cuts Doesn't Equal Faster Growth

BY RICHARD RUBIN

Congressional Republicans who rewrote the rules on measuring the economic effects of legislation may be disappointed at some of the results.

They want to prove a point they’ve been making for decades—that tax cuts spur economic growth and send enough new money into U.S. government coffers to partly pay for themselves. The new rules implement what’s known as dynamic scoring, breaking with a previous system that doesn’t calculate the impact of policy changes.

The problem is that many of the tax bills the Republicans have promoted as job creators— including the research credit and breaks for small businesses—barely register under the macroeconomic models used by the nonpartisan scorekeepers in Congress.

And some of the bills that would partly pay for themselves were opposed by many Republicans, such as the 2009 economic stimulus and the 2013 immigration plan backed by President Barack Obama.

Dynamic scoring is a hotly partisan, if wonky, issue. Republicans call the change a more realistic approach to budgeting. Democrats contend that Republicans are cooking the books in favor of lowering taxes.

The reality may be more mundane.

Budget experts say most tax bills would have little impact on the economy, undercutting the Republican argument about future growth. Importantly, the economic models used in Congress reflect the assumption that tax cuts that add to the budget deficit now can drag down the economy later.

‘Big Stuff’

“When you realize the size of the GDP over 10 years, it’s gotta be really big stuff to have a measurable effect,” said Kenneth Kies, former chief of staff of the Joint Committee on Taxation, which produces estimates of tax bills.

“If you’re pushing some small-ball tax credit for some narrow group of sympathetic people, and it has zero macroeconomic consequences,” he said, it’s “slightly embarrassing to you if you’re out there giving speeches with great enthusiasm on how great this is for the economy.”

Take the research tax credit. The break, a legislative priority for Republicans and corporate America, has been temporarily extended since 1981, and companies say the on-again, off-again nature of the credit is counterproductive.

So last May, Republicans advanced a bill that would have removed the expiration date and made the credit more generous.

“This legislation is about jobs,” declared Eric Cantor, then the second-ranking Republican in the House.

Keeping Score

Not in the view of the official scorekeepers, who said the bill wouldn’t do much for the economy. It would promote some growth in the short run, diminished over time because of the hole it would put in the federal budget, they said.

“The effects of the bill on economic activity are so small and uncertain relative to the size of the economy as to be incalculable,” wrote the Joint Committee on Taxation.

The committee provided the estimate because of a previous Republican rule that required macroeconomic scores on some bills, to advise lawmakers.

The new rule only applies to bills with effects of at least 0.25 percent of the gross domestic product or those selected by top Republicans. The research bill was below that threshold.

Until now, the Joint Committee on Taxation and the Congressional Budget Office have assumed that legislation could change taxpayers’ behavior—for instance, create a tax credit for solar panels and more people will buy them—yet not the size of the economy.

Budget Deficit

The new rule will have its biggest effect, and generate the most controversy, if Republicans attempt to advance a tax plan that would increase the U.S. budget deficit by hundreds of billions of dollars over a decade under conventional estimates and that scores better under the new math.

Yet the conservatism of the Joint Committee’s models—and their control by a nonpartisan chief of staff selected by Democrats—also partly undermines Democrats’ argument that Republicans will generate exaggerated numbers.

Last year, the House passed a bill to let businesses immediately write off more than 50 percent of capital expenses, a major change that would benefit manufacturers and utilities.

“This bill is a jobs bill,” said Representative Pat Tiberi, an Ohio Republican, on the House floor in July. “It’s that simple.”

Federal Revenue

The Joint Committee projected that the measure would increase employment and federal revenue by less than 0.05 percent. The estimates showed that the bill would increase gross domestic product by about 0.2 percent over a decade. By contrast, an estimate from the Tax Foundation, a research group whose board of directors includes corporate executives, estimated that the same proposal would increase GDP by more than 1 percent.

Similarly, the economic effects of a 2014 bill to let small businesses write off all capital expenses were deemed “so small as to be incalculable.”

So what moves the needle?

A few measures Republicans don’t like.

The tax portions of Obama’s 2009 stimulus law, for example, were projected to boost growth by enough to pay for between 7 percent and 17 percent of the higher levies.

A 2011 analysis by the Joint Committee compared two tax-revamp plans, one that was revenue-neutral under conventional scoring methods and one that raised taxes by $600 billion over a decade. The result: In the long run, the tax increase was better for the economy on several measures, increasing GDP by at least 1.7 percent, compared with 1.1 percent for the other proposal.

Immigration Bill

A version of the Senate’s 2013 immigration bill—opposed by many House Republicans—would increase GDP by 3.3 percent in 2023 and reduce budget deficits, according to the CBO.

The prototype for Republicans going forward is the tax- revamp plan released last year by Dave Camp, who was then chairman of the House Ways and Means Committee.

That proposal showed the promise of dynamic scoring and its limits.

Under conventional scoring rules, the Camp plan was revenue-neutral, with tax-rate cuts being offset by limits to breaks. Under the rules now in effect, Camp would have had an additional $50 billion to $700 billion over a decade, money that he could have used to cut tax rates further or soften some proposals opposed by banks and fellow Republicans.

Big Difference

There’s a big difference between $50 billion and $700 billion, and that’s where the dynamic scoring fight is now heading—to a dispute over the models and assumptions that the Joint Committee on Taxation and the Congressional Budget Office will use.

The new rule doesn’t tell the scorekeepers what models and assumptions to use. And the old numbers will still be available, because the old-style data is used to create the new numbers. Any lawmaker can request a score from the Joint Committee on Taxation and make it public, and the scorekeepers should have the old-style scores readily available.

Republicans don’t intend to tell them what to do, said a congressional aide familiar with the process who spoke on condition of anonymity. No decisions have been made yet on which models and assumptions to use, said a second congressional aide.

The personnel will matter, too. Republicans aren’t likely to reappoint Doug Elmendorf as the CBO director, though they haven’t announced a replacement.

Republican tax writers said they will keep the current Joint Committee chief of staff, Thomas Barthold.

He’s an economist and career employee who has had his job since May 2009 and is the longest-serving chief since 1977.

“It’s hard to know how you convert a wide range of estimates into a single number,” said Paul Van de Water, a senior fellow at the Center on Budget and Policy Priorities, which advocates for low-income families and opposes the rule change. “There’s great differences of opinion about these economic issues, so who ends up doing the estimates and what assumptions they use can end up affecting the results.”

 

IRS Scammers Net $14 Million from 3,000 Victims

BY MICHAEL COHN

The pervasive IRS impersonation phone scam has claimed nearly 3,000 victims who have collectively paid over $14 million, according to a new warning from the Treasury Inspector General for Tax Administration.

As the 2015 tax filing season begins, TIGTA reminded taxpayers to beware of phone calls from individuals claiming to represent the IRS while intending to defraud them.

“It is critical that all taxpayers continue to be wary of unsolicited telephone calls from individuals claiming to be IRS employees,” said TIGTA Inspector General J. Russell George in a statement. “This scam, which is international in nature, has proven to be the largest scam of its kind that we have ever seen. The callers are aggressive, they are relentless, and they are ruthless. Once they have your attention, they will say anything to con you out of your hard-earned cash.”

TIGTA has received reports of roughly 290,000 contacts from scammers with taxpayers since October 2013. In the scam, the scammers make unsolicited calls to taxpayers fraudulently claiming to be IRS officials and demanding that they send them money for unpaid taxes via prepaid debit cards or wire transfer.

George noted that the scam has hit taxpayers in every state in the U.S. The scammers threaten those who refuse to pay with immediate arrest, deportation or loss of a business or driver’s license.

“The increasing number of people not only receiving but accepting these unsolicited calls from individuals who fraudulently claim to represent the IRS is alarming,” George added. “At all times, and particularly during the tax filing season, we want to make sure that innocent taxpayers are alert to this scam so they are not harmed by these criminals. Do not become a victim.”

The IRS usually first contacts people by mail—not by phone—about unpaid taxes. The agency will not ask for payment using a pre-paid debit card or wire transfer. IRS employees also will not ask for a credit card number over the phone.

“This is a crime of opportunity, so the best thing you can do to protect yourself is to take away the opportunity,” the Inspector General advised. “Do not engage with these callers. If they call you, hang up the telephone. … If someone unexpectedly calls claiming to be from the IRS and uses threatening language if you don’t pay immediately, that is a sign that it really isn’t the IRS calling.”

The callers who commit this fraud often use an automated robocall machine and employ common names and fake IRS badge numbers. They may already know the last four digits of the victim’s Social Security Number.

The scammers can make their caller ID information appear as if the IRS is calling. They may also send bogus IRS e-mails to support their scam. In addition, they many call a second or third time claiming to be the police or the Department of Motor Vehicles, and the caller ID will again support their claim.

If taxpayers receive a call from someone claiming to be with the IRS asking for a payment, TIGTA advises that If they know owe federal taxes, or think they might owe taxes, they should hang up and call the IRS at 800-829-1040 for help with payment questions. If taxpayers know they don’t owe taxes, they should fill out the “IRS Impersonation scam” form on TIGTA’s Web site, www.treasury.gov/tigta or call TIGTA at 800-366-4484. Taxpayers can also file a complaint with the Federal Trade Commission at www.FTC.gov. They should add “IRS Telephone Scam" to the comments in the complaint.

In addition, the IRS will never request personal or financial information by email, texting, or any social media. Scam emails can be forwarded to phishing@irs.gov. Recipients should not open any attachments or click on any links in these emails.

Taxpayers should also be aware that there are other unrelated scams (such as a lottery sweepstakes winner) and solicitations (such as debt relief) that fraudulently claim to be from the IRS

 

 

IRS Helps Nab Cartel Kingpins

BY ROGER RUSSELL

Working together with a number of agencies, including Customs and Border Protection, the FBI, Interpol and local police departments, the IRS Criminal Investigation unit has helped bring to justice dozens of members of the Sinaloa Cartel.

Sixty alleged members and associates of the Mexico-based Sinaloa Cartel, including the highest-ranking leaders, lieutenants and operators of multiple distribution cells, were charged in 14 indictments with trafficking huge quantities of methamphetamine, cocaine, heroin and marijuana to points around the United States.

Cartel members were targeted for three years in a massive probe involving multiple countries and scores of law enforcement agencies.

The primary indictment targets the alleged leader of the cartel, Ismael Zamgbada-Garcia, known as “El Mayo,” as well as two of his four sons—Ismael Zambada-Sicairos, known as “Mayito Flaco,” and Ismael Zambada-Imperial, known as “Mayito Gordo.” Zambada-Imperial was arrested by Mexican authorities in November 2014.

Among the distributors for the Cartel were members of the Deep Valley Bloods and the Deep Valley Crips street gangs.

“San Diego is at the forefront of narco-dollar money laundering, with couriers using bulk cash smuggling, structured bank deposits, and  high-end luxury vehicles and airplanes to move their illicit drug proceeds,” said IRS Criminal Investigation’s special agent in charge Erick Martinez. “Seizing the dirty cash and assets of these illegal organizations will hit the criminals where it hurts them the most—it will deprive them of their profits.”

According to the indictment, the government is seeking criminal forfeiture of a number of possessions, including a 1982 Cessna Turbo 210 aircraft, a Lamborghini Murceilago luxury vehicle, and other vehicles and property.

 

 

Obama Calls for Fairer Taxes in State of the Union

BY MICHAEL COHN

President Obama urged the Republican-dominated Congress to move ahead on tax reform to lower taxes on middle-class families during his State of the Union address on Tuesday evening.

Obama avoided laying out the details of the tax reform plan that the White House previewed over the weekend, which would raise taxes on upper-income taxpayers, trust funds, capital gains and financial transactions (seeObama Proposes Tax Increases on Wealthy to Aid Middle Class). However, he argued for broader tax reforms that would help families with needs such as childcare as part of the budget that the administration will propose in the next few weeks. 

“Middle-class economics means helping working families feel more secure in a world of constant change,” he said. “That means helping folks afford childcare, college, healthcare, a home, retirement—and my budget will address each of these issues, lowering the taxes of working families and putting thousands of dollars back into their pockets each year.”

 “It’s time we stop treating childcare as a side issue, or a women’s issue, and treat it like the national economic priority that it is for all of us,” he added. “And that’s why my plan will make quality childcare more available, and more affordable, for every middle-class and low-income family with young children in America—by creating more slots and a new tax cut of up to $3,000 per child, per year.”

Obama emphasized the country's economic growth in recent years and the recovery since he took office in the depths of the recession, while also pointing to the income inequality that has become more pronounced amid stagnant wages for many Americans. He urged Congress to move ahead on tax reform, as he traditionally does in his State of the Union address, although he admitted his tax reform priorities do not match the Republican majority's.

“Now, the truth is, when it comes to issues like infrastructure and basic research, I know there’s bipartisan support in this chamber,” he said. “Members of both parties have told me so. Where we too often run onto the rocks is how to pay for these investments. As Americans, we don’t mind paying our fair share of taxes, as long as everybody else does, too. But for far too long, lobbyists have rigged the tax code with loopholes that let some corporations pay nothing while others pay full freight. They’ve riddled it with giveaways the superrich don’t need, denying a break to middle-class families who do.”

As in his speech last year, Obama again asked Congress to end tax breaks for companies that shift their tax addresses and profits abroad. “Let’s close loopholes so we stop rewarding companies that keep profits abroad, and reward those that invest in America,” he said. “Let’s use those savings to rebuild our infrastructure and make it more attractive for companies to bring jobs home. Let’s simplify the system and let a small business owner file based on her actual bank statement, instead of the number of accountants she can afford. And let’s close the loopholes that lead to inequality by allowing the top one percent to avoid paying taxes on their accumulated wealth. We can use that money to help more families pay for childcare and send their kids to college. We need a tax code that truly helps working Americans trying to get a leg up in the new economy, and we can achieve that together.”

The President also issued a number of proposals that the White House has highlighted in the weeks leading up to the speech, including free community college tuition and paid sick leave for workers. In discussing international affairs, he called on Congress to pass a resolution authorizing the use of force against ISIL. He also highlighted the pressing need to do more to combat climate change and pointed to a recent agreement between the U.S. and China on limiting greenhouse gas emissions.

In the Republican response, freshman Senator Joni Ernst, R-Iowa, agreed on the need for tax reform, although without raising taxes. "Let's simplify America's outdated and loophole-ridden tax code,” she said. “Republicans think tax filing should be easier for you, not just the well-connected. So let's iron out loopholes to lower rates and create jobs, not pay for more government spending.”

 

 

Most Outrageous Tax Deductions of 2015

The Minnesota Society of Certified Public Accountants recently surveyed its CPA members in public accounting on the most outrageous tax deductions clients tried to take on their tax returns. Their responses included everything from pets and weddings to cars impounded by the police

 

Questionable Dependents

Attempting to claim "Fido" as a dependent is popular amongst clients with pets. One CPA reported a woman tried to claim her unborn child as a dependent.

A Daughter's Wedding

Sure, weddings are entertaining. But deducting the full cost as an entertainment expense does not make for a good relationship with the IRS. 

The Cost of Speeding Tickets

Even if it's because you were late for a business meeting, speeding tickets are fines and therefore, not deductible on your tax return

Misinterpretations of Charitable Donation

Charity can take on many forms. But for one CPA's client, a vehicle that was impounded by the police was not deemed a qualifying deduction. 

Hobbies

The IRS does not allow deductions for hobby expenses. One client learned that when he attempted to take deductions on his horse ranch.

Keeping Up Appearances

While some professions may require a certain appearance, the cost of haircuts, plastic surgery, massages and salon expenses are generally not deductible.

Creative Investments

The loss on the sale of a personal house, while unfortunate, does not qualify as an investment by the IRS

Expansive Home Office Expenses

Deductions on a home office are limited to the portion of the home dedicated to the business. Clients have attempted to do more though, from the cost of groceries to the mortgage.

Boats

Want smooth sailing on your tax return? Then you should not deduct your boat as a "water computer," as one CPA had to inform their client

Hunting Trips Because You "Talk Business"

That weekend of hunting with friends is generally not deductible, no matter how often you talk about your boss.

 

 

Disclaimer: This article is for general information purposes only, and is not intended to provide professional tax, legal, or financial advice. To determine how this or other information in this newsletter might apply to your specific situation, contact us for more details and counsel.

 

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