You thought the Mayan Doomsday was
coming*, but this year is going to be one of unprecedented frustration for
taxpayers. A slew of regulatory and
political factors are going to create a perfect storm over the next two
years. Of course, we have the economy
and strained family budgets from years of unemployment, cut hours and
underemployment (not enough hours, cuts in pay). So a lot of people qualify for the Earned
Income Credit and various other credits resulting in big refunds. The bump in cash is taking on added meaning
for many. Adding to this, the
ill-advised drop in Social Security and Medicare taxes (the long term solvency
is questionable at best, so we will reduce revenue) will create a smaller
paycheck in 2013.
*BTW, a friend from Central America pointed out to me that
the Mayan’s are amused at the rest of us…the notation relied on as the end of
time basically means “end of calendar”, or chisel out a new one.
Then I get to explain to you all
the delays in actually getting your refund.
The first part that you may have spotted in the headlines is the delay
in the IRS starting to process returns.
That date typically is around January 15th. This year, it was scheduled for January 22nd
but is now going to be January 30th.
Now, if you have your W2 and other documents. Fireside will then hold your return until it
can be processed. A further caveat, is
that a long list of forms may delay your ability to file even further. There was some talk of delaying the deadline
to file because of all of this but that was before the new year and I haven’t
seen anything further on that.
Then you also have to face
something that has gotten little media attention at all. That is the IRS fraud and identity theft
programs. There has always been a hefty
fraud rate, especially with the earned income credit. There has been an explosion in identity
theft. This is estimated to be in the
neighborhood of 4-5 billion a year. With
the explosion of online, do-it yourself sites, fraudsters don’t even have to
show up to a preparer and risk being exposed anymore. They can go online and do it. There have also been fake websites set up that
lure you in to doing your return through their site, often for “free”. They then submit your return through a
legitimate e-filing site with the slight adjustment of the refund going to
THEIR bank account. Rather than shut
down or hinder these sites, the IRS has decided the solution is to further
delay your refund to protect you from this.
Annually, the IRS publishes a Refund Cycle Chart where I can tell you if
I submit your return by a certain date, you will get your refund on a certain
date, usually 1-2 weeks by direct deposit.
Now it is no guarantee but it will usually be there by 26 days.
This is following the IRS and
banking regulators virtually banning rapid refunds to protect the poor. Not that I ever said it was a good deal but
when it was legal to offer, I offered the lowest rates and on checks from a
local bank so you could cash them for free.
As a matter of fact, my office at the time was in the same mall next to
the bank. But those are gone now. Again, the government protecting you.
Those reasons for each problem are
valid in themselves but there is an unstated reason. It is very basic and obvious once it is
pointed out. Our government runs an
annual deficit over a trillion dollars.
It has been downgraded as a credit risk.
As any seasoned preparer knows, the people who are owed a refund,
especially large ones, come in as soon as they have their documents. Think if you are the IRS. You now have to write all of those
checks. Now, revenue comes in year round
through a system of withholding and requirements for estimated payments. But there are a substantial number of people
that owe and owe big every year. Those
folks do not come in until April. See
the problem? You have the surge of
refunds to pay out but have to wait to get the surge in payouts. Couple that with Republicans trying to get
actual spending cuts to bring spending back in line with receipts using the
debt ceiling and you have a problem. For
that reason, if there is an extension of the FILING deadline, don’t expect a
delay in the PAYMENT deadline which are typically both April 15.
Finally, the IRS is regulating tax
preparers. It used to be that if you
were over the age of 18, had a high school diploma and no felonies involving
financial dishonesty, you could prepare taxes.
As a matter of fact, nobody was really checking so even those were not really
required. Now, it is required that a
preparer have a PTIN (Preparer Tax Identification Number) which must be renewed
annually with background checks and continuing education. They are also tracking problems on those
preparer’s returns and literally walking into the offices to inspect. Local preparers in Stark County have been
suspended and fined tens of thousands of dollars. In addition, if you are not a licensed attorney
or CPA, you have to take a competency exam to be a Registered Tax Return Preparer
(RTRP). Had enough alphabet soup
yet? In addition, preparers are REQUIRED
to provide e-filing. This is another
regulatory process that I won’t get into, but it doesn’t bother me because I
have always done it anyway.
I have already passed the competency
exam. You will find a sudden dearth of
preparer’s next year since there are 350,000 non-attorney/CPA preparers in the
US and the last I heard less than 10,000 had passed the test. Next season (starting January 2014), all
preparers must have taken the test.
Finally, another nightmare awaits
in 2014. That will be the first year
that the Obamacare health insurance provisions will be enforced through the
income tax returns. I will put out more
on that later.
