IRS Screws Up, But Taxpayer Wins

They should make a reality show on the daily drama in a tax office. I volunteer to use my office as I think some of the garbage the IRS comes up with is a joke and I enjoy a good laugh.

Few of my regular clients get audited and for good reason. My team works hard at filing an accurate tax return the first time. We can get aggressive, but only if we have a nail to hang our hat on. No wingers. When audits do occur, they are usually short with a small or no change. The same cannot be said about audits that come from outside the firm.

A regular client received his audit notice recently and we went to work. Preparing a tax return and preparing for an audit are two different animals. Preparing a return requires numbers to be placed in the correct spot with consideration toward tax savings. An audit is the process of verifying those numbers. The audit in question stood the test when reviewed internally. The IRS disagreed.

The auditor, new to the job, disallowed all business miles. The taxpayer's mileage log was in perfect order. The IRS demanded that additional documentation not listed in the tax code for the deduction to be allowed. I told the auditor he was full of... (Sorry, this is a family blog.) After months of discussion and no progress, I filed suit in Tax Court. The auditor called when he received notice of the suit. I told him to get ready to look like an idiot in front of the judge, a real tax professional. The audit was dropped, no change.

All those resources wasted. And to think: Why does Congress want to cut the IRS's budget for 2012? If Revenue used their money more wisely they could cut their budget in half without sacrificing a thing. But then again, I don't run the IRS.

Raising Cain and Obama

My job requires review of potential tax changes and how they will affect my clients. One of the most radical proposals to change the tax code is Herman Cain's 9-9-9 plan. Much has been said in the news about the plan, but nowhere is it mentioned which class of taxpayer will be affected.

Herman Cain's tax plan is almost the complete opposite of President Obama's plan. Obama proposed a tax increase on all taxpayers making more than $250,000 per year. The American people and Congress gave a loud, resounding NO to this idea.

Cain's plan will give a tax cut to the people Obama wanted to tax more. Under Cain, people under $250,000 per year will pay more. A lot more. Half of all households pay no federal income tax. Cain's plan will introduce a 9% national sales tax that everyone will pay regardless of income. The second 9 is for the personal income tax rate. Since over half of all taxpayers pay less than 9%, most taxpayers will get a tax increase. Corporations will do well, however. Most regular corporations that pay at a 35% tax rate will now only pay 9%, the last of the three 9s. The idea is that the tax savings by businesses will get reinvested into the business to create jobs. That is why people start a business. To create jobs. Right?

Maybe we should be careful what we wish for.

I wonder what "Joe the Plumber" thinks about Cain's plan? He did say he would pay more taxes under Obama's plan. He should love the tax cut.

Things Are Looking Up

I see more jobs than any time in my career. Fully half of all my business clients are hiring or have hired in the last few months. Tax Prep & Accounting Services hired three bookkeepers this summer, more tax preparers for tax season, and one or two more will be added this week to handle the phones and front desk duties. Either the national statistics are wrong, will soon reflect the growing economy, or my clients are the only ones experiencing economic expansion.

The only real explanation is the economy is finally gaining traction. Once the wheels start turning, the rust can get ground off, and America can be back in the saddle again.

It has been a long economic pullback. Even though the government says we are in a mild expansion for a few years now, it never felt like it was. Certain statistics tell me we are due for better days ahead. The average car on the road in nearly 10 years old, the oldest fleet on record. Households have reduced debt for several years. With lower debt and an old auto fleet, vehicle sales should continue to grow with all the jobs it requires. As old, worn out things need updating, either repair or remodeling is required or a new purchase.

I feel good for my clients. I feel good for their new employees. As people get jobs they can update old cars, furniture, or buy a home. The economy always works best when people feel good about themselves. We took a serious body blow in 2007 and 2008. When sentiment is crushed that hard it takes time to get back up and running again.

I hope we are all running again real soon.

Who Needs a Job?

A few weeks ago I attended a four day weekend seminar on practice development. I am always looking for ways to increase my business, increase efficiency, and provide a better, more value added service, to my clients. The investment in time and money was well worth it.

Spending a long weekend in a hotel conference room for 12 hours a day is grueling work. The variety of topics required attention with a high level of concentration. The money investment was large and I wanted the most value for my dollar.

The first two days we covered acquiring clients and managing the work flow. Getting more work is the easy part. Getting the work done is the challenge. Since I had committed to adding a few more employees, I focused on the client acquisition methods taught with special attention toward moving work through the office in a timely manner without errors.

On day three we practiced what we learned. On day four, alternatives were offered. The one I want to talk about today is outsourcing in the accounting and tax industry. All during the presentation I wondered how America will ever produce jobs when even tax preparers and bookkeepers are looking to move work to India for a fraction of the cost. I listened to the details knowing I would never send my client information anywhere else. Many other accounting firms were far more interested in sending work abroad.

The company that presented their services touted the high level of education of their employees and security of data. The cost was around $12 per hour per employee. I would still be required to scan all documents into the system for the guys in India to do the work. It really is a turn-key service.

The cost of $12 an hour is only a mild advantage until you consider the additional costs of employment: worker's compensation, unemployment (federal and state), payroll taxes, and benefits. It is cheaper to hire someone to scan work in than to hire a professional. And other overhead, such as the space requirements for employees to do the work, adds up.

There are certainly advantages to outsourcing to another country. I will never do it in my office however. I want a personal relationship with my clients. If work is done in house, opportunities to save the client money increases. My profit margins are a little lower, but I hire Americans. It is worth the commitment.

And one more thing. Your accountant cannot send your social security number out of the country without your consent. Consent cannot be buried inside the engagement letter either. If your accountant/tax preparer asks you to sign such a form, get a new accountant. You want a tax/accounting professional committed to you.

The same rules do not apply to partnership and corporate tax returns. Bookkeeping either.

Who Will Protect Us From the Better Business Bureau?

Shopping for a large purchase or service requires research. We ask friends where they bought and the experience; depending on the item, we check Consumer Reports; we scan the internet for information and reviews; and we check with the Better Business Bureau (BBB). But what do we know about our research sources? How unbiased is Consumer Reports? We all know to take online reviews with a grain of salt, but what about the BBB? Should we trust them?

The BBB has reputation as a trusted source of information on businesses. This trust comes from a history of providing consumers with reliable information on a wide variety of businesses. History, unfortunately, has nothing to do with the quality of information disseminated.

The BBB is funded by businesses that are members. Therefore, the BBB has an incentive to keep members looking good so the dues (money) keep rolling in.

A question never asked is: Who watches the BBB? What if the BBB used underhanded practices in the management of their organization? Would you trust the BBB if they spammed businesses or lied to get businesses to join? The bond of trust is fragile and destroyed by bad behavior. It takes a long time to build trust and only a moment to ruin it.

I can't speak toward internal policies at the BBB; I can share my experience with them and it is not flattering. Every year in January, just before tax season kicks off, the BBB in Milwaukee calls me with the good news someone inquired about my company. They refuse to tell me who made the inquiry. I am assured the inquiry is not a complaint, but if I joined the BBB they could provide more and better information on my business. The first year I thought nothing of the event; the second year I knew the gig was up. My thoughts: I only get one inquiry a year and just before tax time? Why is someone inquiring about my business with the Milwaukee BBB, a two hour drive away, when the Appleton BBB is only a few minutes away?

The answers are clear to me. The BBB lied to get at my checkbook. Trust is destroyed. I am not, and never will be, a member of the BBB. The values and ethics the BBB practices are unacceptable in my office. The BBB has every right to try recruiting me as a member. Doing so using underhanded procedures is not.

I no longer use the BBB as a research tool in my purchases as all trust is gone. I cannot help but wonder what other underhanded practices they employ. Would they tell me about bad reports about one of their members? Probably. But I really don't trust them anymore. I trust internet reviews more because there is an understanding the reviews are slanted to the writer's opinion and companies may pay for positive reviews. The BBB wants me to believe they are a more trusted resource when in my mind they are not. Since I don't trust anything the BBB says anymore, why bother looking to the BBB for information.

So I ask again: Who will protect us from the BBB?

Paper Losses

I visited one of my print shop clients recently to finish some tax reports and pick up bookkeeping papers. As he refilled his copier for the third time with 800 sheets, holding a ream of paper, he said, "And each pack of paper is short." My eyes glossed until the weight of his words sunk in.

"What?"

"Yeah. Each ream is short. The average ream has 493 sheets instead of the 500 listed on the package."

I asked him how he knew this, knowing he would never sit down and count how many sheets are in a pack.

He pointed to his printer. "The machine prints the customer the right amount."

Argument settled and a lesson learned. Consumers of paper are suffering a paper loss and don't know it. And even though we are a paperless office, we still use enough paper to make the shortage count (pun intended.)

The 7 page average shortage is 1.4%. A small office may spend $10,000 a year on paper (accounting offices, at least.) This adds up to around $140 per year in losses. I don't know about you, but $140 means a lot to me. I feel violated. And now that you know, you do, too.

Welcome to my world.

Where Were You?

Every generation has that moment where everyone remembers where they were and what they were doing. My grandfather's moment was the attack on Pearl Harbor; my father's, President Kennedy's assassination; for the current generation, 9/11, or to be more accurate, the planes hitting the World Trade Center towers. The plane crashing in Pennsylvania and into the Pentagon do not light our memories like the Twin Towers. The courageous efforts of those on United Airlines Flight 93 made the ultimate sacrifice by crashing the aircraft in Pennsylvania, saving another target from destruction. They should not be forgotten. The Pentagon is a military target and had less impact on people further from the destruction and not personally affected. They also shall never be forgotten.

I remember where I was and what I was doing when the news broke. I was watching CNBC as I dressed for work when newsanchor, Mark Hanes, inturupted the discussion to report a plane hit the North Tower of the World Trade Center. Live video of the smoking building filled the screen. I had two thoughts: How the h*%$ could a pilot hit a building in a city center, and, How will they (firefighters) ever get up there to rescue people and put out the fire. After a few moments I began to wonder how repairs are made in such a situation. At this point it seemed nothing more than a serious and unfortunate accident.

The horror was about to grow as reports came in this may be a terrorist attack. A short while later it was confirmed as the world watched live as Flight 175 crashed into the South Tower. I sat on the edge of my couch too numb to weep.

I stayed home that day and watched the horror unfold. My emotions ranged from angry, to sad, to depressed. My heart went out to the dead and their families, injured, and scared. The United States has not been the same since.

I have no cute remarks to end this post. There is nothing funny about the events on September 11, 2001. As the day ended ten years ago, I thought, Welcome to the Twenty First Century. The science fiction writers never told us it could be like this.

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