I GOT IT!

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I wanted to update the saga of my PTIN application.

I just received, via email attachment, a 2-page “Welcome Letter” from the IRS that stated –

“We’ve accepted your application for a Preparer Tax Identification Number (PTIN).”

The letter indicated that my “assigned PTIN” was the same as the one that I have been using for the past few years.

The letter also identifies the “Next Steps” -

“1) Pass a competency test

Many return preparers will need to take a competency test given by the IRS to retain their PTINs. This test will be available soon after June 1, 2011. We will provide you with more instructions at that time. (In certain limited situations, a tax return preparer may not be required to take a test. We will provide specific guidance before testing begins.)

You will have until December 31, 2013, to complete and pass the test. After you pass the test, you will be an IRS Registered Tax Return Preparer.

If you do not pass the test by December 31, 2013, your PTIN will no longer be valid. This will affect your status as a tax practitioner as well as your ability to prepare returns.

2) Complete annual continuing education

We will also be implementing a continuing education requirement. We will notify you when the requirement begins and to whom it will apply. At that time, we'll also provide additional guidance, including how to find approved education sponsors.

3) Keep your PTIN account current

You'll need to renew your PTIN within one year of the date of this letter. Please be sure to also update your account any time your information changes. You can make these updates online at www.IRS.gov/taxpros using your User ID and password. You can also visit your account online to check your PTIN renewal date, or find other relevant information.”

It also stated –

“You indicated on your application that you're currently in compliance with your federal tax obligations. To ensure that you maintain compliance in the future, the IRS will conduct periodic tax compliance checks.

The IRS may also conduct a background check, and you may need to provide fingerprints. Having a felony conviction on your record could affect your status as a tax practitioner as well as your ability to prepare tax returns. For more information, see Treasury Department Circular 230 § 10.51.”

I have some objections to providing my fingerprints (not that I am trying to hide any felony convictions) – and certainly hope it does not come to that.

I am pleased, and relieved, that my PTIN application process has been completed. I already take more than 15 hours of CPE per year, so there is nothing extra I have to do there. The next step is having to take a test to prove that I know what I have been doing successfully and without incident for 39 years – but I have three years to worry about that. Not that I will wait till the last minute to take the test – I will probably take it in the summer of 2012.

TAFN

HOMESTEAD "BENEFIT" FILING DEADLINE EXTENDED

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The deadline for filing the 2009 Homestead Benefit application has been extended from November 1, 2010, to January 3, 2011.

The application is filed with online or via telephone.

“New Jersey residents who owned a home that was their principal residence on Oct. 1, 2009, and paid property taxes on that home, will qualify for a Homestead Benefit, provided their 2009 New Jersey gross income was $75,000 or less, or if they are senior or disabled homeowners and their 2009 New Jersey gross income was $150,000 or less.”

There is no more Homestead “Rebate”. It is now a Homestead “Benefit”. Those who qualify will not receive checks from Trenton in 2010. Instead they will/should receive a direct credit against their 2011 actual real estate tax bill which will probably show up in the 2nd quarter. This is “more better” – and how it should be.

More information on the “benefit” is available on the NJ Division of Taxation website.

PTIN REGISTRATION UPDATE

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I had set out to “fabreze” my existing PTIN, as required under the new tax return preparer regulation regime, online at the IRS website once the process become available.

My initial attempts to submit my application online were unsuccessful. Apparently from what I have read in my online “wanderings” other tax pros also had problems with the online process. I discussed these attempts in the post “What a Mucking Fess” at TWTP.

As a result of my difficulties registering online I filed a paper application on Form W-12 on October 4th. I was concerned when I checked the other day to find that my check for payment of the $64.25 fee had not yet been cashed.

I have been told that while the IRS has resolved most of the initial issues it encountered at the start-up of the online process, there are still problems with “authentication”. This is because of slight differences between the way tax preparers have entered their addresses in the application and what appears on their last tax return, mostly in terms of punctuation and abbreviations.

I was not alone in abandoning the online registration and turning to a paper application. This has created a backlog in processing W-12s, with which the IRS is trying to figure out how to deal. I have been assured that the IRS is working through the issues – and I do believe the assurances.

So if you gave up on the online system and filed a W-12, and have not heard back from the IRS yet (or your check also remains uncashed) do not worry. Have patience.

TAFN

THE LATEST INCOME-RAISING ATTEMPT BY NJ DIVISION OF TAXATION

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I have heard from several clients who received a letter from the New Jersey Division of Taxation dated October 1st stating –

“A review of your 2007 New Jersey Gross Income Tax Return together with information provided by the Internal Revenue Service has revealed a discrepancy in the Taxable Amount Received for Pensions and Annuities reported on Line 19 of the return.”

A “Deficiency Worksheet” is attached, showing the amounts reported on the original NJ-1040, the change, and the corrected amounts. The bottom line is additional tax, penalty and interest due.

In all of the cases that have come across my desk so far the amount of pension and annuity income was not reported on the NJ-1040 because it was exempt from NJ Gross Income Tax as a recovery of “after-tax” employee contributions..

Two cases involved distributions from the “Deferred Compensation” plan of Fire Fighters employed by the City of Newark. The third concerned a pension from a state employees’ retirement plan, and the distribution for the year in question was exempt under the “Three-Year Rule”.

In each case the pension distribution had been fully taxable on the federal return, because the employee contributions were “pre-tax” for federal income tax purposes when the contributions were made. However, as the contributions were not made to a 401(k) employer plan, they were “after tax” for purposes of the NJ-1040.

In all three cases I send a letter of explanation to the NJ Division of Taxation – but, as of this writing – have heard nothing back from Trenton.

TAFN

NO SURPRISE HERE

The Tax Foundation’s TAX POLICY BLOG reports “New State Business Tax Climate Index Released Today” – today being October 26th.

“Today we released the 2011 State Business Tax Climate Index, which ranks from 1 (best) to 50 (worst) the tax systems of the 50 states. South Dakota's tax system is most welcoming to economic activity while New York's tax code ranks 50th as the least hospitable.”

The 10 state with the worst business tax climate on the first day of the 2011 fiscal yer (July 1, 2010) are –

50. New York
49. California
48. New Jersey
47. Connecticut
46. Ohio
45. Iowa
44. Maryland
43. Minnesota
42. Rhode Island
41. North Carolina

Residents of the Garden State are certainly not surprised to find New Jersey the third worst. It is actually better than most of us would have thought!

The ten states that had the best tax climates were South Dakota, Alaska, Wyoming, Nevada, Florida, Montana, New Hampshire, Delaware, Utah and Indiana.

According to the report -

“The worst state tax codes tend to have:

• complex, multi-rate corporate and individual income taxes with above-average tax rates;
• above-average sales tax rates that don't exempt business-to-business purchases;
• complex, high-rate unemployment tax systems; and
• high property tax collections as a percentage of personal income.”

TAFN

THE DFBs!

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And I definitely mean DFB in its intended “non-clean” version (i.e. I do not mean "damned fool bureaucrats").

I just got a notice from the New York State Department of Taxation and Finance telling me that they will no longer selling bulk copies of NYS income tax forms.

Originally NY, like NJ and once upon a time the IRS, would mail resident or non-resident tax booklets to individuals who filed a return for the prior year. The booklet would include full instructions, including tax tables and rate schedules, and 2 copies each of the appropriate forms. If a taxpayer filed a 2001 IT-203 he/she would get a 2002 IT-203 booklet in January of 2003. If the taxpayer were a client he/she would give me the booklet with the tax “stuff” so I would have the forms needed to prepare the NY state return.

The NYS Department of Taxation and Finance decided not to send out any state tax booklets to anyone for tax year 2009. In order to get the forms I would have to buy them from the DOTAF via a “bulk order” placed on Form TP 1.3. I actually had been using this order form for some time, as I needed to order a minimal supply of supplemental forms and schedules not included in the tax booklets and I wanted to have a small inventory of IT-201 and IT-203 and supplemental forms on hand. The Form TP 1.3 was mailed to me each year.

Today’s notice announces – “We’re no longer automatically mailing Form TP 1.3, Order Form for Bulk Quantities of New York State Income and Corporation Tax Returns. The easiest way to get tax forms is to download them from our Web site at www.nystax.gov. Income tax forms are also available on CD-ROM”. The notice included an order form for the CD-ROM.

I looked to see if I could find the Form TP 1.3 available for download at the NYS website – but I could not. So I guess this form has bit the dust, and NYS will not mail me tax forms even if I pay for them.

Another notice was included in the mailing that stated -

(1) "Opt-out has been eliminated - Clients can no longer opt out of e-filing their returns", and

(2) "No separate fee for e-file – You can’t charge clients a separate fee for e-filing their returns."

What balls!

(1) There are individual taxpayers who have legitimate concerns about the electronic filing or paying of anything, and seriously prefer to do things “the old fashioned way”. What right does the state have to ignore the honest concerns of these taxpayers?

(2) If it costs a tax professional more to e-file a return than to file a paper return, for example if he/she uses an e-file service, the tax pro should be permitted to pass the additional cost along to the client. The State of New York is not going to reimburse the tax pro for the additional costs. I suppose the tax pro can get around this by instead of charging an additional fee to e-file just increase his/her base fee for NYS returns.

Luckily it appears I am not subject to the e-file mandate for NYS returns. According to the web page that explains “Who the mandate applies to” –

“You must e-file all individual income tax, fiduciary and partnership returns . . . and individual and partnership extensions beginning January 1, 2011 if you’re a tax return preparer and:

• you were subject to the mandate in a prior year, or
• you meet both of the following conditions:

* you prepared more than 100 combined original individual, fiduciary and/or partnership returns for 2009 in calendar year 2010, and

* you use tax software to prepare one or more New York State individual, fiduciary and/or partnership returns for tax year 2010 in calendar year 2011."

As you may be aware, in 39 tax seasons I have never used flawed tax software to prepare income tax returns - either federal or state – so it looks like I am “off the hook”. At least NY has the sense not to force me to either waste thousands of dollars on software or give up preparing NYS returns.

I have been mad at the NYS Department of Taxation and Finance ever since they created the Form IT-2 – a W-2 “substitute” – and required me to hand write all the pertinent information from the W-2 on this form instead of simply including a copy of the W-2 with the return. A waste of valuable time when there is no time to waste!

The DFBs!

TAFN

LUNCH WITH THE DIRECTOR OF NJDOT

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I just got an email from the New Jersey Chamber of Commerce inviting me to attend a luncheon with the new Director of the NJ Division of Taxation on Wednesday, October 20th in New York City.

Here is what the email said –

“Michael Bryan was appointed Director of New Jersey’s Division of Taxation in July. Director Bryan brings over 20 years of tax and accounting experience, both in the private and public sector, to the Division. You are invited to join Director Bryan over lunch at the New York City offices of Reed Smith LLP. Director Bryan will discuss upcoming initiatives and other New Jersey tax policy matters.

In addition, Mary Ellen Peppard, Manager of Government Relations for the New Jersey Chamber of Commerce, will provide an update on New Jersey legislative and administrative developments.

There is no cost to attend, but space is limited.”

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And, the email also points out, membership in the NJ Chamber of Commerce is not required to attend.

Event Details:

Wednesday, October 20
Noon to 1:00 pm
Law Offices of Reed Smith LLP
599 Lexington Avenue
22nd Floor
New York, NY 10022

To register for the event click here.

TAFN

ANOTHER FYI

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Here is some news about the IRS online PTIN application process – which, as reported by several tax bloggers (myself included), has been experiencing some problems -

**The IRS Online PTIN Sign-Up System will be unavailable beginning approximately 8:00 a.m. EDT Saturday, October 9, 2010 until approximately 8:00 a.m. EDT Monday, October 11, 2010 due to system maintenance. We apologize for any inconvenience.**

FYI

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On August 17th I prepared an amended 2009 Form 1040 to claim the First Time Homebuyer Credit for a “long-time” homeowner who purchased a home in 2009 within the guidelines of the extended credit. I attached copies of all requested documentation with the filing.

I just got a note from the client dated September 30th to tell me that he received his check.

There had been some talk that these claims were being seriously delayed. However in this case the client received his refund check within 6 weeks.

Just thought you might be interested.

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TAFN

NEW JERSEY IS EXPENSIVE!

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Duh! Constipation, Mr Holmes.

We residents of the “garden state” know full well that is costs way too much money to live here.

Some supportive documentation -

(1) No surprise here. In “Highest Property Taxes in the Country” CNN MONEY tells us -

“New Jersey residents pay the highest annual tax bill of any state - a median $6,579 per year, according to the Tax Foundation, which calculated the tally using data the U.S. Census Bureau released on Tuesday.”

(2) Today’s “Your Business” section of the STAR LEDGER tells us “Looking to Stare A New Business? Deep Pockets a Necessity in NJ”. (online title = "Jersey City and Newark Among Most Expensive Cities to Run a Business”).

“The pair {Jersey City, my hometown, and Newark – rdf} joins other such pricey towns as New York, Philadelphia, Chicago and San Francisco, according to the 16th annual Cost of Doing Business Survey by Claremont McKenna College in California.”

It appears that Jersey City (#5) beats out New York City (#6)!

This survey looked at 413 cities across the nation and examined their licensing fees and property, utilities and sales taxes.

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Jersey City and Newark were the only NJ cities in the survey. Perhaps NJ could have claimed all 10 of the top 10 spots if the entire state had been reviewed.

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“The study found Jersey City has the highest property tax rate of all cities, at 6 percent, and a retail licensing fee of $40,000. Newark has a property tax of just a little over 1 percent, and a licensing fee of $2,300 — but it also charges a 1 percent payroll tax.”

5 of the 10 least expensive cities in which to do business are in Texas, home state of my fellow tax-blogger Kay Bell of DON’T MESS WITH TAXES. Included is Kay’s hometown of Austin, “which boasts a low property tax rate and doesn’t levy any business taxes or fees”. I, however, would never move my business to Austin – too hot!

The article quotes Brad Jensen, a researcher at the Rose Institute, which conducted the study, as explaining –

“Texas is a state that gets it. They understand that if you want to provide government services, you have to balance how much you charge in fees and taxes, otherwise you’ll end up strangling the golden goose."

I seem to recall reading somewhere not too long ago that states with lower overall tax burdens are currently in much better financial shape than highly-taxed states like near-bankrupt New Jersey.

The bottom line – two more good reasons to embrace the philosophy of GRIP (Get Rid of Incumbent Politicians) and vote the bastards out at the next election.

TAFN