October 2012

An Interview with Eva Rosenberg, EA (aka Tax Mama)

The 2012 tax season looms and we asked Enrolled Agent, Eva Rosenberg to share some of the top issues she’s teaching for 2012 filing.

What’s on your list of the top tax updates for 2012?
Updates for this year include Circular 230 changes affecting tax professionals, Form 706 and other death-related filings, per diem rates and reporting, client consents and disclosure issues, and many more. One area I’m focusing on is the Voluntary Classification Settlement Program (VCSP).

No. 1: The Voluntary Classification Settlement Program
There has been a long-running battle between the IRS and employers about defining a worker’s status as employee or independent contractor. The IRS has pursued employers through payroll audits, but audits and collection actions are time-consuming and costly. Someone had the insight that the IRS could collect more money if it offered incentives for employers to come clean voluntarily. So the Voluntary Classification Settlement Program was born. Under the VCSP, taxpayers who have wrongly classified employees as contractors have an opportunity to come in from the cold. VSCP allows these businesses to reclassify workers from contractors to employees for future tax periods and, by doing so, to get some significant relief from federal employment taxes and a shield from related audits. Tax preparers need to look more closely at how VCSP works and whether or not to recommend this to their clients.

No. 2: Foreign assets and the amnesty decision
The IRS is getting more aggressive about offshore assets. They are going after assets in a growing number of countries and imposing hefty penalties. Penalties can be as high as 100 percent of the value of the account unless people participate in an amnesty program. But the rules governing amnesty are very rigid, so tax pros are having some major discussions about when to participate and when it’s better to opt out.

No. 3: The small employer health insurance premium credit.
Clients who are paying health insurance premiums for their employees can get a tax credit but the paperwork involved is monumental. Is the credit worth the extra effort it takes? That’s something the tax pro has to help the client decide.

No. 4: The RTRP exam—no time to delay
I want to raise an alarm about the Registered Tax Return Preparer test. Of the 400,000 people who must take the test by December 2013, only about 100,000 or so have passed this exam so far. Seats for the test are limited. So I urge tax preparers to reserve a test date now. It’s like a big game of musical chairs. A lot of people face being left standing when the time runs out.

No. 5: Update your website and client materials
The IRS has changed its website to comply with search engine optimization techniques, creating a mess of dead links for us to deal with. If you have IRS links on your website, or in materials you give to clients, you want to check them immediately, fixing the ones that don’t work anymore. It’s a time consuming task that no one wants at this time of year. But you don’t want to look uninformed or out-of-touch to clients and prospects.

We’re going to be facing a lot of uncertainty as this year comes to a close. The IRS is asking even more from tax professionals in terms of our education and updates, keeping our clients honest, and keeping our firms on the straight and narrow. My goal is not to make predictions from a cloudy crystal ball. It’s to give you useful information that you can use – and to help guide you to reliable sources that will keep you updated for the coming tax season.

For this and many more upcoming tax update programs this season, check out CPE Link.


As of October 2012, out of nearly 400,000 provisional PTIN holders, more than 320,000 still need to pass the new IRS Registered Tax Return Preparer examination. Starting November 1st, that means they have 14 months to finish their testing by December 31, 2013.

Think about it. That means nearly 22,800 people will need to test during each of the next 14 months – or nearly 1,100 per day (facilities are open 5 days/week) – along with all the other candidate in all the other professions, like nurses, CPAs, firefighters, police officers, etc.

Prometric only offers the RTRP exam in the United States, where they have 263 facilities. That means at least 4 or 5 RTRP candidates should be testing at each facility every day.

That’s manageable – if folks do test in each facility – and if they do start testing immediately. However, Prometric only permits one exam candidate per exam to use the facility at the same time. (In other words, 2 RTRP candidates cannot both be taking the test at the Atlanta facility from 2:00 pm to 5:00 pm on the same day.) That does limit the parameters even more.

Of course, since most candidates live in or near large urban centers…there’s likely to be quite a scramble for test appointments.

Worse, as a source at Prometric points out, if candidates wait until September or October of 2013 to start testing, Prometric will have a hard time accommodating 300,000 in only three months. (3 months x 4.25 weeks x 5 days/week = 63.75 testing days. 300,000/63.75 = more than 4700 people per day.) Oh sure, spread across all the facilities in the U.S., that only means about 18 people per day. But we all know the concentration will be in the large cities – and there simply won’t be enough seats. Candidates will have to drive 100 miles or more to a facility, or fly to a smaller town, perhaps in another state or country, to locate a seat.

Prometric recommends that if you do plan to wait until the last few months, you reserve your seat right now. At least you’ll be able to get a spot in a testing facility near you. If you end up having to reschedule more than 30 days before your appointment date, you’ll be able to do so at no charge. Less than that? You’ll have to pay a fee to reschedule. (In the last 5 days? You’ll have to pay the full fee all over again.)

Expensive Deadline to Ignore

What happens if they don’t pass the RTRP exam by December 31, 2013?

According to the IRS, on January 1, 2014, provisional PTIN holders will lose their PTINs and be unable to efile; to get paid to prepare a tax return; or to do any substantive work on a tax return for a tax firm. At least not legally.

Folks working for themselves will lose their livelihoods – or they will be forced to hire an RTRP, EA or CPA with an EFIN and PTIN to do the sole practitioner’s job until he or she can pass the exam and qualify. There goes all the profit.

Firms with staff they count on for much of the day-to-day tax work, won’t be able to let those key staff members touch a tax return.

Take the Test, NOW!

There’s really no need to put off the exam. After all, it’s an open-book exam. A tax professional with years of experience should be able to pass the exam relatively easily.

Well, maybe not so easily. There’s a twist to this exam that you won’t expect – and where there is no open book. A big chunk of the exam is on compliance – Circular 230. So study that and the exam will be easy to pass.

Feeling queasy about exam-taking and need help? There are dozens of courses, tools and materials to help you pass the exam.

In fact, I am teaching regular review classes at CPE Link – or you can pick up the self-study version.

What happens if you don’t pass when you take the exam this year or next? Nothing. Sure, you’re out $116 – but you can sit for the exam again, as many times as it takes to pass. So you have nothing to lose but a few hard-earned dollars. At least you’ll be able to continue to earn lots of dollars if you pass.

And remember, even if you only have a provisional PTIN right now, you’re still responsible for the 15 hours of continuing education. You’ll need proof of those CE credits in order to renew your PTIN this year.

Of course, if you’re planning to take the EA exam instead, skip the RTRP exam and study hard to get your EA well before Registered Tax Return Preparer deadline. If you don’t happen to finish all three parts of the EA exam – then you can join the last-minute scramble for the RTRP exam.

Guest blogger, Eva Rosenberg, Tax Mama

For the last 100 years or so of U.S. taxation, there has been absolutely no regulation of tax preparers in most of the United States (about 48 states). This has been an easy field to enter, requiring no minimum education, no minimum training, and no licensing whatsoever.

Literally, anyone at all could open up shop one day and prepare tax returns without having a clue about tax law or procedure, collect fees from clients, and then disappear after tax season. And they did.

That kind of operation gave a bad name to the legitimate, trained tax professionals who did an excellent job, year-after-year. Worse, those fly-by-night outfits were competition for the legitimate tax pros. Since they could generate high refunds for low fees, you were losing clients to these guys.

You couldn’t compete because you were doing an honest job preparing your tax returns – and couldn’t even figure out – what do those guys know about tax law that I don’t? Nothing.

In fact, what many of these places did was just make up deductions and credits to use on tax returns to generate refundable credits. Since you weren’t making up information, you couldn’t get the same results for your clients.

Traveling around the country, seeing this kind of fraud, disturbed Nina Olson, the National Taxpayer Advocate, so much, that she started a campaign to end this practice. In her reports to Congress, over a span of several years, Olson advocated regulating tax professionals and setting minimum standards and continuing education requirements.

The IRS put the word out to the tax professional community to see what our reaction was. And it was mixed.

Some of us embraced the idea – especially those people in a position to see how many people were not keeping up.

Others, especially those who had been in business for decades, were offended and incensed. Why should they have to test on something they’ve been doing well for years? Besides, who can remember the last time we’ve even taken a test – much less a computerized test?

After hearing from everyone, the IRS decided regulation was needed. There was a crucial need for a minimum level of competency – and an annual education requirement. (They almost applied this testing requirements to CPAs – because they don’t have a minimum requirement for continuing education in taxation.)

Testing – The test has been developed as an open book test.

  • Anyone who has been doing a competent job as a tax professional, and staying up to date on tax laws, should be able to pass.
  • Except for one little twist. A big part of them exam is on Professional Ethics and Standards. It’s based on a publication the average tax preparer has probably never even seen before – Circular 230. And this book is not ‘open’ during the exam.
  • You must pass this exam no later than 12/31/13 in order to stay in business. You will not be permitted to efile or sign tax returns as of 01/01/14 if you are not an RTRP, EA, CPA or attorney.

Education – All RTRPs must complete 15 hours of tax education each and every year. This applies to provisional PTIN holders currently – even if you haven’t passed the exam yet.

  • This isn’t as hard to achieve as you might expect. It’s barely more than an hour per month. (Even if you only take classes in the 8 months outside of tax season, that’s less than 2 hours per month.)
  • Breakdown – 2 hours of ethics, 3 hours of federal tax updates, 10 hours of federal tax education. (Note: extra hours of federal tax updates can be applied towards the 10 hours of federal tax education.)

This is going to be a good thing for the whole industry. It’s going to eliminate your unethical competition down the block. You’ll be better prepared to do your job. And, along the way, you might even learn how to streamline your own tax practice, be more efficient, offer more services – and increase your profits.

Guest blogger: Eva Rosenberg, Tax Mama

RTRPs – You have 83 days remaining to get your continuing education hours for 2012!

Registered Tax Return Preparers (and RTRP candidates) must earn 15 hours of continuing education by December 31, 2012—even if you haven’t taken the IRS competency exam yet.

You must complete: 2 hours of ethics, 10 hours of  federal tax law, and 3 hours of federal tax law updates.

CPE Link offers all the topics you need to satisfy your 15 hour continuing professional education requirement. Choose from live webcasts or online self-study. All courses are registered with the IRS and count towards your annual CPE requirement.

Looking for a quick and easy solution?

CPE Link is currently offering its 15 Hour CPE Package for only $69. These are all online self-study courses. You get instant access to the materials and can take your final exams anytime. You need to score 70% to pass and you get three tries. Once you pass the final exams, you get 10 hours Federal Tax, 2 hours Ethics, 3 hours Federal Tax Law Updates.

The credit hours you earn will be automatically reported to the IRS for you.

The clock is ticking…

How do we measure success in Family Wealth planning (my preferred term to that of “estate planning”)? I believe the measure of success is meeting client goals in a practical, understandable and cost efficient way. This is a human process – involving first, people and their aspirations, opinions and goals. Then, given the financial aspects of planning, we consider property, its characterization, title, income stream, and appreciation potential. Finally, the goals of most families include passing on the property to younger generation family members – and here we come face to face with taxation in its various forms. The process involved in meeting family goals requires advisor competency, communication and real concern for our clients.

For nearly 50 years I have been involved in the use of entities, often pass‐through entities, for the efficient planning of clients’ estates – during lifetime and after death. The properly formed, funded and operated entity can separate management and equity ownership, can develop a format for gift and other transfers of equity interests within a family, and often constitutes an integral part of the overall succession plan for the family.

The year 2010 was a real challenge for planners and their clients, given the 1‐year repeal of the Federal estate and GST tax (not the gift tax, however). Then, late in December, 2010, the Tax Relief Act of 2010 was enacted into law in a rush to prevent the repeal of the 2001 “Bush tax changes” effective January 1, 2011. Now we are into the second year of the 2‐year “planning mandate window” for review, update and improvement of clients’ estate plans.

Planning now, even with the 2010 new legislation in effect, seems required, at least for our clients with larger estates. The review of Wills and trusts with formula bypass and marital trust clauses is needed, at a minimum. Further, given the uncertainty here, clients should review and confirm their intentions for estate distribution at death – to make certain their wishes are carried out.

We have something of a “triple reason” for planning now – low asset values in this recessionary economy, low interest rates (example: the mid‐term AFR rate for October, 2011 – over 3 and to and including 9 year loans or sales within the family – is 1.19%), and yet valuation discounts may be in for adverse legislation soon!

For further insights into family wealth planning from guest blogger Owen Fiore, JD, view his free on-demand webcast, Family Estate and Succession Planning: 2012 and Beyond.