IRS Updates Pub 17 Tax Guide

The IRS has made its annual updates to the Tax Guide (Publication 17).  Pub 17 is a virtual tax bible which has been available to taxpayers since the 1940s.  It contains just about everything you would need to successfully file your own taxes if not ensure your eternal salvation.  It is also somewhat biblical in length at 292 pages.  If you’re a do-it-yourself type person then you may be able to file your taxes without paying a tax professional this year, but you’ll have to start reading now.  Here is a brief outline of what you can expect to find in the new 2013 version*.

1. The Income Tax Return

Part one contains information about who needs to file, how to file (filing status selection), what forms to use, who can be claimed as dependents, etc. It also covers tax withholding and estimated tax requirements.

2. Income

The general rule is that you have to report and pay taxes on all income.  Part two delves into what is and what is not considered income.

3. Gains and Losses

Part three discusses investment gains and losses, including how to figure your basis in property.

4. Adjustments to Income

5. Standard Deductions and Itemized Deductions

6. Figuring Your Taxes and Credits

I always thought the Tax Guide was an odd (maybe archaic) sort of publication.  If you think about it, tax attorneys, accountants, and tax preparers have most of this stuff down pat, and the do-it-yourselfers are using tax software to prepare their returns.  However, it is a good reference tool.

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Court Shoots Down IRS Return Preparer Certification Program

If you follow current events in the world of tax relief and tax preparation, you probably heard about the federal district court decision permanently enjoining the IRS from enforcing its 2011 tax return preparer regulations.  The U.S. District Court for the District of Columbia ruled that the IRS lacked authority to regulate tax return preparer certification programs — 
such authority would have to be granted by Congress.

The IRS Return Preparer Initiative would have required thousands of non-professional return preparers across the country to pass minimum competency exams, pay a fee, and complete minimum education requirements.  In fact, many return preparers did take the exam and pay the fee, all for naught apparently.  The initiative did not seek to regulate the CPA, tax attorney, or enrolled agent.

Large tax prep companies like Intuit (TurboTax), Jackson Hewitt, and H&R Block disapprove of the decision; you can probably guess why.  They will tell you that it hurts taxpayers who unwarily hire incompetent return preparers, but we know their only concern is the bottom line and weeding out as much competition as possible.  Of course, the “mom & pop” tax prep firms see this court decision as a big victory.

Some believe that voluntary certification is a better solution.  Voluntary certification would still raise the bar for tax preparers and the industry in general, but in a more “free market” sort of way.  Tax preparers would decide on their own to certify, or not to certify.  And individuals seeking tax help would decide on their own to hire a certified preparer, or take their chances with someone else.

At this point it is not clear whether the IRS will appeal the decision.  Read the IRS official statement here.

Free Tax Prep: You Get What You Pay For

A total of 3.1 million individual income tax returns were prepared for elderly, disabled, and low-income taxpayers at Volunteer Program sites in FY 2010. IRS Volunteer Programs include  the Volunteer Income Tax Assistance and Tax Counseling for the Elderly Programs. These programs scored extremely low marks from TIGTA (Treasury Inspector General for Tax Administration)  in arecent audit.

The findings of this review are very troubling. ~ J. Russell George, TIGTA

TIGTA found that volunteers are not following guidelines, using intake forms incorrectly, and even knowingly falsifying the facts. This resulted in a sharp increase in inaccuracies during the 2010 filing season. An abysmal 39 percent of the returns picked up by TIGTA auditors were prepared correctly. However, the sample size of the audit was very small: 14 out of 36 returns were error-free.

TIGTA is also concerned that the volunteers are not being properly screened. This is especially troubling given the amount of sensitive personal information that is entrusted to the volunteers by taxpayers who are perhaps more vulnerable to identity theft and fraud than the average citizen.

So, what does TIGTA recommend the IRS do to turn things around? There were many recommendations, and the IRS agreed to implement all of them. Here are just a few:

  • Evaluate the quality review process
  • Include “secret shopper” component in audit process
  • Improve volunteer standards of conduct
  • Develop a process for keeping a closer eye on volunteers
  • Revise intake procedures

These recommendations obviously lack the specifics needed to immediately put them into practice. It will be up to the IRS to fill in the blanks and decide how it will implement these changes. It really is unfortunate that the government cannot provide competent tax prep services to those who are willing to participate in the tax system, but do not have the resources or ability to file on their own. I wonder how many of these people realize that when they sign their name on the return, the error made by the preparer becomes their own error. I also wonder how many of the mistakes made by volunteers have resulted in a tax debt when a refund was expected.