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- Written by: Robert E. McKenzie
They’re the 1% no one aspires to join: the small percentage of taxpayers who get audited by the IRS.
There is no such thing as a free lunch, if you're the Internal Revenue Service. The IRS is considering whether the free meals doled out to employees at tech companies and other Silicon Valley firms hungry for talent are a fringe benefit that should be taxed. Chris Roberts, NBC Bay AREA, 4-8-13
The IRS has learned the Willie Sutton Principle: When it comes to revenues, go to where the money is. New data from the IRS shows that tax filers with taxable incomes of $1 million or more were audited nearly 12 times more often than the population as a whole. Robert Frank, CNBC, 4-4-13
Discussing IRS Asserted right to read your emails:
However, folks were outraged today to find out that the IRS, as part of the government, might use that authority to in fact read your email. The obvious gut reaction to such a digital prostate examination is the context of an audit. No one likes those. TNW.com, 4-10-13
"... the key question is: can we define 'income' in a fair and reasonably straightforward manner? Unfortunately we have not yet succeeded in doing so". -Shirley Peterson, former IRS Commissioner, April 1993
Fully half of Americans would rather be mugged by street criminals than audited by the IRS, according to a recent survey reported in Harper’s magazine. We assume the other half have never been audited. (Survey source: Harper’s, April 1998)
The shorter the time to April 15, the longer the face of the taxpayer. -Unknown
No man’s property is safe while Congress is in session. -Mark Twain
A man was floating along in a balloon and had lost his bearings. Finally he spotted a man standing on a hilltop and shouted out: “Where am I.” The man on the hilltop responded: “You are in a balloon about 75 feet up.” The man in the balloon responded: “You must be a tax lawyer because what you told me is totally accurate and totally useless.” The tax lawyer on the hilltop responded: “You must be a tax accountant. You don’t know where you are or where you are going and now you are blaming the tax lawyer.”
The local bar was so sure that its bartender was the strongest man around that they offered a standing $1000 bet. The bartender would squeeze a lemon until all the juice ran into a glass, and hand the lemon to a patron. Anyone who could squeeze one more drop of juice out would win the money.
Many people had tried over time: weightlifters, strongmen, Olympians, but no one could do it. One day a scrawny little man came into the bar wearing thick glasses and a polyester suit, and said in a tiny squeaky voice “I’d like to try the bet.” After the laughter had died down, the bartender said OK, grabbed a lemon, and squeezed away. Then he handed the wrinkled remains of the rind to the little man.
But the crowd’s laughter turned to total silence as the man clenched his fist around the lemon and six drops fell into the glass. As the crowd cheered, the bartender paid the $1000, and asked the little man, “What do you do for a living? Are you a lumberjack, a weightlifter, what?” The man replied, “I’m an IRS Agent.”
A man had fallen between the rails in a subway station. People were all crowding around trying to get him out before the train ran him over. They were all shouting.
“Give me your hand!” but the man would not reach up. A man elbowed his way through the crowd and leaned over the man. “Friend,” he asked, “what is your profession?” “I am a Revenue officer,” gasped the man. “In that case,” said the first man, “take my hand!” The man immediately grasped the other man’s hand and was hauled to safety. He turned to the amazed bystanders and declared, “Never ask a tax man to GIVE you anything, you fools!”
I become confused when I hear the word "Service" used as follows:
- Internal Revenue 'Service'
- US Postal 'Service'
- Telephone 'Service'
- Cable TV 'Service'
- Civil 'Service'
- Federal, State, City, & public 'Service'
- Customer 'Service'
This is NOT what I thought 'Service' meant. But today, I overheard two farmers talking, and one of them said he had hired a bull to 'Service' a few cows. BAM!!! It all came into focus. Now I understand what all those agencies and companies are doing to us. You are now as enlightened as I.
Jonnelle Marte. MarketWatch.com, 4-10-13
Courtesy of Sharon Kreider, CPA
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- Written by: Joshua Fluegel
Changing 1040 Software Vendors
If clients are the heart of tax season then 1040 tax software is the circulatory system. It regulates the speed and efficiency of necessary material throughout the system. If the software is a hindrance then a healthy clientele is all for naught. 1040 software vendors each diagnose these hindrances in speed and efficiency and come up with their own solutions.
“Every minute counts, especially during tax season, so being able to import as much client data as possible is crucial,” said JoAnn Kintzel, President of TaxACT.
Some place importance on the process as a whole. Such as Scott Fleszar, VP of Strategic Marketing for Thompson Reuters who thinks a good workflow can help shave precious seconds off a return’s completion time.
“This speeds every step of the tax prep process, frees the tax professional from tedious manual data entry work, time consuming administrative tasks, and inefficient paper files, said Fleszar. The human element can also be important with 1040 software. A practitioner does not want to feel abandoned once a software package has been purchased. Wes Parker, owner of AW Parker, PC has experienced this helpless situation before when dealing with ProSeries from Intuit.
“I left them years ago due to the increased pricing and the decrease in customer service, said Parker. “I recently received a promotional flier wanting me back. When I called to inquire, I was transferred three times and on hold for about ten minutes. I suddenly realized why I had left them before. I hung up and threw the flier in the garbage. Time to change to someone who will appreciate your business.”
Only the upcoming tax season will tell if these new solutions stand up to the challenge and which ones will need to be revamped next year.
Reviews
Cloud & Document Management
Drake Software
- Drake Hosted features a cloudbased SaaS model using Citrix technology, where the full desktop software program is installed and hosted in the Drake Cloud.
- Users can access Drake Hosted from work, home or on the road.
- Drake engineers install, host, manage, maintain, update and backup everything in a secure environment for Drake Hosted.
- Users can use local peripherals like printers and scanners on Drake Hosted as if the software is on a local server.
- Drake Zero, the web-based 1040 prep software, requires no installation.
- Drake Zero uses same core calculation engine as the desktop software.
- Drake Zero can be accessed from anywhere.
What Users Say
“I use Drake because it’s one price, and it’s done,” said Patrick Musgrave in Indianapolis, Indiana. “Anytime I call support they answer the phone in seconds, then answer my question and we move on. Just what I need at the height of tax season.”
Drake Software | Drake Software
drakesoftware.com | 800-890-9500
Utility Tracks Down Client Data
Intuit Lacerte
- Features automated calculations and diagnostics to help ensure accurate returns.
- SmartMap technology enables the transfer of QuickBooks trial balance data.
- The Missing Client Data Utility tracks down client data.
- The Schedule D Import Wizard can transfer client brokerage statements into Lacerte.
- Like-Kind-Exchange Wizard helps users input 1031 exchange transactions quickly.
- Tax analysis and planning tools help firms reduce the risk of audit for clients and reduce their tax liability.
- Personal Income (1040) Tax and Fiduciary (1041) Tax Organizers to help clients collect the documents and information users need.
What Users Say
“Intuit Lacerte features new columns for e-file returns that allow the user to quickly view information and guide them through the tax process. Users are also allowed to organize, view and edit electronic documents.”
Intuit Lacerte | Intuit
accountants.intuit.com | 877-683-3280
Review System Uses Color Coded Tick Marks
ProSystem fx Tax
- Features automatic calculations, overrides and optimizations for every federal and state return.
- The diagnostic system tests for omissions and inconsistencies, then finds related input.
- Features state programs for all entities, including full multi-state capabilities.
- Features a client and tax return management system that provides a complete status of returns and staff responsibilities.
- Features navigation panels, popup menus and “forms-stepping” features that allow users to navigate through a return.
- Features depreciation and depletion capability for both individual and business returns.
- Features an on-screen review system with color-coded tick marks, field and global notes, lists, overrides and estimates.
“We have been using ProSystem fx Tax and Computax before that since 1979,” said Paul Charles in Garden City, New York. “There is no other tax package as comprehensive and complete as ProSystem fx. It gets better every year. My firm couldn’t get through a year without it.”
ProSystem fx Tax | CCH, a Wolters Kluwer business
cchgroup.com | 800-739-9998
Group Dispositions Like-Kind Wizard
TaxWorks
- Users have access to diagnostic audits that bring common errors to their attention or prevent e-file rejects before they happen.
- The fixed asset manager can track fixed asset and nonconforming state depreciation. Book/tax and AMT depreciation differences are tracked and carried to M-1 or AMT related forms.
- Email password protected PDF copies of the return to the client or other parties.
- Archive returns in ArkWorks or save PDF copies to their file system for other archival programs.
- Import K-1s generated from 1065, 1120S, or 1041 systems into 1040 or other entities returns.
- Use a barcode reader to import K-1 information from printed Schedule K-1s with 2-D Barcodes.
- Support for electronic signature pads, if the taxpayer is in the office, they can sign the return electronically.
What Users Say
“The thing that I am really really impressed with TaxWorks is the auditing of the tax return,” said Danny Griff in Kemmerer, Wyoming. “It is very very in depth at making sure you are putting out a return and catching everything on it. I’ve looked at every software and no one is as in-depth.
TaxWorks | RedGear Technologies
taxworks.com | 800-230-2322
7 Benefits Including FAFSA Filing
TaxACT Preparer’s Edition
- Users charged on a “per form” basis can fill in the cost of each form, and the information will transfer to the return’s invoice.
- TaxACT also features a new state charge-by-form template.
- E-filing with TaxACT is available for all federal returns, income-taxing states that support e-filing and select 1065, 1120S & 1120 states.
- Compute loan payments or the future value of savings deposits and print their amortization and accumulation schedules.
- Customize export queries of the client list to comma-separated values (CSV) or tab-delimited (.txt) formatted files. Users can then integrate client contact data into software reporting tools.
- Print a worksheet with the tax information required for the Free Application for Federal Student Aid (FAFSA).
- TaxACT identifies potential “hot spots” that may catch the IRS’s eye. Users can show clients exactly where they stand compared to the rest of the taxpaying public.
What Users
“Thank you for such a wonderful product,” said D. Guillory of Duluth, GA. “Your company has enabled me to grow my tax business by providing me with a great product at the most reasonable price available.”
TaxACT – Preparer’s Edition | 2nd Story Software
prep.taxact.com | 800-573-4287
Tax Subject Index for Entries
UltraTax CS
- Provides several drop-down lists or field views of commonly repeated entries, such as business codes for specific fields.
- Users create their own custom field views of commonly used information, such as names of local banks or charitable organizations.
- Users can scan bar codes on 1065, 1120S, and 1041 Schedule K-1s, and barcodes on W-2s.
- Within secure, private client portals, your clients can access and complete their organizers online 24/7. Users can then import client data directly without re-keying.
- Users can receive alerts to share data such as demographic, W-2, 1099R, K-1, and Form 8615 Kiddie Tax data. Users can transfer account balances directly into Write-Up CS.
- Users can provide their clients with access to their 1040, 1120, 1065, 1041, 990, 706, 709, and 5500 tax returns by posting them directly to NetClient CS Portals.
- Diagnostics allows users to monitor selected values while entering data or in review, and automatically calculate these values.
What Users Say
“The UltraTax CS program is superefficient and the support is outstanding,” said Hector Carlos of HJC Tax Services in Alhambra, California.
UltraTax CS | Thompson Reuters
cs.thompsonreuters.com | 800-890-9500
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- Written by: T. Steel Rose, CPA
Reviews of financial statements will be in the eye of the storm when the JOBS (Jumpstart Our Business Startups) Act rules are finally enacted by the SEC. Startups are expected to begin raising equity capital on websites at the start of 2013 based on this legislation signed into law in April of this year. Against the railing of Congress that the SEC is tantamount to being in “contempt of Congress”, the rules are still forthcoming.
The impact on CPA firms will be substantial. CPA firms across the country have expressed a wide array of opinion on the new opportunity and associated risks. To provide CPAs insight on this new practice arena CPA Magazine talked with CPA audit partners in firms literally across the country. Phil Holmes, CPA is audit partner with Hartman Leito & Bolt with offices in Dallas and Fort Worth, Texas. Shreedhar Kothari, CPA is a shareholder with Gumbiner Savett practicing in Los Angeles, California. Will Russell is a partner with Jarrard, Nowell & Russell with offices in Charleston and Summerville, South Carolina.
Expressing both optimism and concern, these intrepid CPAs who are well versed in Reviews and small firm audits offer clear perception of the Review landscape ahead.
CPA Magazine: What do you like best about being a CPA?
Phil Holmes, CPA: I enjoy providing service to clients.
Shreedhar Kothari, CPA: Being a CPA with owner operated companies has helped me be a business advisor; and keeping up with the laws is what I enjoy. I am part of the Indian Film Festival Board and it’s because of my involvement I am involved with both.
Will Russell, CPA: Being self employed; selfemployed in a profession I enjoy.
CPA Magazine: How does your firm approach a Review engagement for a firm that has not been reviewed or audited before?
Holmes: We typically start by interviewing management and taking a look at the financials they are currently using to get a sense of how knowledgeable management is over their financial reporting; so we can identify areas that may need more attention and could be of higher risk.
Russell: We utilize the Thompson Reuters risk assessment forms to assist us in analyzing the organization. Any organization that has not had an audit or Review is subject to more analysis due to the uncertainty.
Kothari: We understand the nature of the business and how they are doing things to determine which areas will require more focus for us and for management. We emphasize planning [in order] to educate management to get them in GAAP format. We have to get the books to a point to do the Review. Most are not prepared to prepare financial statements in a GAAP format; and the rules are changing all the time.
CPA Magazine: How many staff does it take?
Holmes: Typically two onsite in addition to the manager and partner.
Kothari: An audit partner and manager are assigned along with one staff member.
Russell: Each engagement is different; it depends on many factors such as size, industry, complexity, number of locations, etc.
CPA Magazine: How do you budget for the engagement and how long does it take to complete a Review on average?
Holmes: Most reviews are within a general parameter of hours, but we will budget more or less depending on the degree of complexity and strength of financial management. I would say 150 to 175 hours on average.
Kothari: A day of field work and less than a week for planning and completing the opening and closing trial balance and completing the permanent files.
Russell: Once we determine the areas we will focus on for the engagement we can then determine the staffing needs as well as the time each area will take. Upon completion we can then budget the entire engagement. It takes 3-4 weeks.
CPA Magazine: What problems do you encounter?
Holmes: Problems encountered typically relate to companies who may not have faced much scrutiny on their accounting methods. This could lead to adjustments being made to not only the year-end being evaluated but also prior year-ends so that beginning balances can be adequately relied on. Many times, companies are using some type of modified cash basis with a focus on tax reporting. When we start conducting a review based on GAAP, numerous consultation meetings along with booking adjustments are necessary to arrive at good financials prior to beginning the Review process. Most are using QuickBooks. Obviously the conundrum we face is not assisting with the preparation of the financial statements, but clients need help to pull together the financials.
Kothari: Their books may not be in shape; they may be unfamiliar with GAAP. You find the problems; you inform the client that complying with GAAP may be cost prohibitive.
Russell: Issues vary by engagement. Sometimes the clients don’t understand what we need so it is difficult to accomplish our objectives.
CPA Magazine: What software helps with the workpapers and trial balance prep?
Holmes: We use Caseware software to capture a company’s trial balance and produce our lead schedules regardless if the engagement is an audit or a Review. Since we are only providing limited assurance with a Review, we do not use some of the other software tools that we might use in audit (e.g. IDEA for sampling).
Kothari: We use ProSystem fx Engagement. It is linked from trial balance all the way to the financial systems. We use GofileRoom which takes care of the documents.
Russell: Thomson Reuters has developed a suite of products that we utilize in our office to assist us with attest engagements including etools, practice aids and online research guides.
CPA Magazine: What is the range of costs for a Review engagement if there are no problems?
Holmes: This really depends on the size of the company, but I would say that a small company with no complex issues could be done for about $10,000. Larger companies with more accounting issues may push into the $20k range.
Kothari: The cost can be prohibitive for a raise of $500,000. Our costs may not be what is charged to the client. It all depends, but can range from 10 to 15 to 20 thousand dollars. Startups can be more difficult than other companies.
Russell: It depends on the complexity of the engagement but an estimate is $6,000 - $15,000.
CPA Magazine: What is the exposure for risk?
Holmes: A Review is conducted in accordance with SSARS; and we provide limited assurance on the financials. The level of work we perform is substantially less than an audit since we are not necessarily vouching activity and examining underlining support as we do with audits.
Additionally, we are not required to gain a detailed understanding of internal controls along with related testing, so there is a risk that the control environment could be riskier than we may perceive it to be.
Kothari: For this kind of new investment from investors that are not sophisticated, there is management fraud. The [JOBS] Act allows them to raise money. It has been widely successful in Europe. The frauds will get the most press. But it is good for the small businesses. There needs to be checks and balances. Bad actors will take advantage but the advantages outweigh the negatives.
Russell: Any time a CPA issues an attestation report there is a risk. We have to be diligent in our procedures and analysis to make certain we have accurately stated the financial position of the organization and have adequately determined the quality of information, the assessment of internal controls as well as the performance of the management team.
CPA Magazine: Do you have current or prospective clients who may seek a Review in order to be crowdfunded in 2013 in compliance with the JOBS Act signed in April of 2012?
Holmes: I have not seen any movement on this, but if the JOBS Act leads to fewer regulations to allow more small investors to get involved, I would think this could lead to a start of more small businesses that will need help from accountants.
Kothari: There are a couple of people who have inquired. As CPAs get to know it more work will come from it. The requirements had been too high for small firms to obtain funding. This may be a solution for a lot of people who did not have the option before.
Russell: Yes, however, if they haven’t begun planning yet for the Review it will be very difficult to accomplish in 2012. In order for them to meet the requirements they will need to make sure about their governance processes and procedures.
CPA Magazine: What do you think of the prospect of new companies raising $500,000 on the Internet on the strength of a review?
Holmes: If I were investing, I would lean on an audit more than a review. I would think that it would bring clients in. This should be good opportunity. When we are accepting a client we do become aware of the use for the financials. A Review is a Review regardless of where they [the financial statements] are posted.
Kothari: There are a lot of companies without the systems in place. I don’t think they are going to be ready. I agree with it [crowdfunding] philosophically. We have to evaluate the companies based on their financials. It is based on a level of sophistication, if it is a bank providing a loan, he knows the client, and knows financial statements.
Russell: I am a little nervous. The small entrepreneurs may need more structure. A review does not provide all of the confidence that an investor would need to invest in a startup. For example, we have a client that is a group of doctors that formed an RRG. A Risk Retention Group enables people to insure themselves, if they are willing to put their capital at risk. They are regulated by the State. It is a smaller version of crowdfunding. It explains the risk, requires an audit, and is the right way to do it.
CPA Magazine: What do you enjoy doing with your time off?
Holmes: Family, golf and working out.
Kothari: I enjoy tennis, cricket and bicycling.
Russell: A lot of time in the boat on the coast and college football and being the father to two children.
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- Written by: CPA Magazine