Category: Tax

Now Non-CPAs Can Taste the CPA Exam Experience!

The IRS Commissioner and his subaltern for preparer regulation this week spilled some of the beans about the “competency tests” that they are imposing on the unwashed (non-CPA, non-lawyer, non-enrolled agent) preparers. Some key bits, as reported by Tax Analysts (sorry, subscriber-only link):


This confirms the obvious: the competency test will be a joke. It has to be, or too few preparers would survive to prepare the nation’s returns. It won’t be completely open-book, but it sounds like you will be able to pass if you have adequate skills at reading and using an index.
This all makes it look like the cynics are right – it’s all about extending IRS power over preparers.

Don’t believe me? Listen to Shulman’s own words:

Today, I want to talk for a little bit about some of our priority programs, such as the Return Preparer Program, the evolution of our relationship with our largest corporate taxpayers, including Schedule UTP, and our work on what we’re calling a real time tax system.

The common thread that runs through them is points of leverage and working smarter.

Points of leverage sounds like what a wrestler uses to pin an opponent. The IRS can use these “points of leverage” to make preparers more subjects of the government and less advocates for their clients. And in their own sweet time, they will.

IRS to Allow Deduction of Medical Expenses for Those Diagnosed with Gender Identity Disorder

When nature makes a mistake, it can be expensive to repair. Rhiannon O’Donnabhain long suspected that nature had mistakenly assigned him to the wrong team, and after growing up male, fathering three children, and getting divorced, looked into fixing that. A diagnosis of Gender Identity Disorder (GID) was reached, and the process began.


There was a lot involved. The Tax Court says the process included:

– 20 weekly individual therapy sessions.
– Hormone therapy
– facial surgery
– genital surgical sex reassignment
– breast augmentation surgery

This process continued under the watchful (but not free) observation of a therapist.

Now female, O’Donnabhain deducted $21,741 in medical expenses related to the reassignment on her 2001 return. The IRS objected, but the Tax Court upheld her medical deductions for all but the breast augmentation (they said that was cosmetic, not medical).

The expert testimony also establishes that given (1) the risks, pain, and extensive rehabilitation associated with sex reassignment surgery, (2) the stigma encountered by persons who change their gender role and appearance in society, and (3) the expert-backed but commonsense point that the desire of a genetic male to have his genitals removed requires an explanation beyond mere dissatisfaction with appearance (such as GID or psychosis), petitioner would not have undergone hormone therapy and sex reassignment surgery except in an effort to alleviate the distress and suffering attendant to GID. Respondent’s contention that petitioner undertook the surgery and hormone treatments to improve appearance is at best a superficial characterization of the circumstances that is thoroughly rebutted by the medical evidence.

Now the IRS has changed its mind. In an Action on Decision published yesterday the IRS said that they will follow the Tax Court’s decision and will allow gender reassignment costs as a medical deduction for diagnosed GID.

Unfortunately, there still is no known medical fix for Accountants Personality Disorder. Medicine remains helpless to treat the many rock stars trapped in CPA personalities.

This Tax Reform Stuff Can Wait

[I]f we are going to make real progress, we can’t fixate on every overhyped, half-baked tax slogan that comes along. Sooner or later we must get back to basics. Here’s the main question: Should taxes be cut, raised, or reformed without changing overall revenue? The answer is that taxes should be cut in the short term, raised after we are clearly out of our cyclical downturn, and then reformed only after we have settled on the magnitude of tax increases needed for deficit reduction. [Martin Sullivan]

Threatening to Kill an IRS Employee Over the Phone Is Not Advised

Everybody admires a CPA who is willing to stand up to the IRS for a client. To a point.

A New York CPA went past that point, according to the IRS Office of Professional Responsibility. If the testimony of an IRS agent before an administrative law judge is to be believed, the CPA, George Diehl, is at least guilty of a social faux pas in a conversation with IRS Revenue Officer Miamouna Diakite when she refused to put a 45-day hold on collection of a client account.

From the ALJ opinion:

Diakite stated that Diehl refused to enter into an installment agreement. Diakite testified that he became irate and loud, saying that he had obtained holds on accounts routinely, and asked to speak to Diakite’s supervisor. Diakite told him that, pursuant to IRS procedure, her supervisor would call him within 24 hours. He insisted on talking to her supervisor immediately. Diakite then, also pursuant to protocol, told him that the account was then in “collection status” whereby the IRS “will” levy against Taxpayer 1’s bank account, garnish her salary and obtain liens on her real and personal property.

Diakite testified that Diehl became very upset and said “do you know what I do to people like you. I kill them.” Diakite replied “you don’t mean that, sir” and Diehl replied “I do. I do. I’ll kill you.” Diakite then sat at her desk repeating to herself aloud that Diehl said that he would kill her and he is in New York. She became frightened and then heard a male voice, not Diehl’s, saying “what are you doing?” and the phone was then disconnected.

The opinion never does say who the “male voice” belongs to. Somebody with better manners, perhaps.

The ALJ did believe the agent:

I find that Diehl threatened Diakite. His credibility was shaken by first stating that his words to her was that you are “killing me with your stupidity and then changing that testimony to state that you are “killing me with your bullshit.”

So for all of you aspiring CPAs out there, some lessons:

• Try not to let client tax matters get to a point where you have to argue on a hold for collection.

• Don’t threaten to kill the agents. They don’t like that, and it tends to make it more difficult to get them to help your client.

•Don’t be a pottymouth. That bad language completely blew it with that nice administrative law judge.

Rick Perry to U.S. Taxpayer: COME ON DOWN

One of the biggest problems with Texas Governor Rick Perry’s optional flat tax may be the choice it gives taxpayers. Perry says you can either pay his new tax or pay under today’s system, whichever results in a lower bill. That sounds great, but it is a policy disaster. This is the tax code we’re talking about, not some TV game show. [TaxVox]

Form Letters Generated by Pesky Technology Spurred by BS Deadlines Are to Blame for Herman Cain’s Late Taxes: Spokesman

Godfather of tax gimmicks Herman Cain has a bit of tax trouble in his past, reports the Daily Beast. In 2006, while Herm was undergoing treatment for cancer, taxes due to the state of Georgia were not paid in a timely fashion and this resulted in the GOP hopeful being served with a tax lien. It took a couple of years to sort everything which was probably longer than necessary since it sounds like extensions were filed on time but the campaign is using this non-issue to remind everyone that we need to fix this mess that is controlled by computers and deadlines and things that drive the system:

The Republican’s campaign late Tuesday confirmed the lien, portraying the unpaid taxes as an oversight while Cain was undergoing cancer treatment and the state’s lien as an excessive response that shows the need for tax reform.

“The experience serves as an example of how broken our federal and state bureaucracies are with respect to the collection of revenue,” Cain campaign spokesman J.D. Gordon told The Beast. “The entire process is driven by automated letters generated in response to deadlines.”

Right. Because allowing citizens to file taxes whenever it’s convenient, using hand-written letters delivered by carrier pigeon would be a much better way to administer our tax system.

Cain’s Tax Delinquency [TDB]

Herman Cain Wants You to Try the New 9-9-9 Recipe

Godfather of gold ties and GOP Presidential candidate Herman Cain has taken a lot of heat for his 9-9-9 tax plan. While it has a nice ring to it, not too many people are crazy about 9-cubed including his fellow GOP hopefuls, their tax taskmaster Grover Norquist, and every tax wonk within the DC delivery area.

Sensing something needed to be changed, Cain got his economics advisor accountant and whomever else is crunching the numbers to go back to the drawing board. And what did they come up with, you ask? Are they throwing in free bread sticks? Fresher ingredients? A gluten-free crust stuffed with cheese? Nope! That would just cause more confusion, so they just dropped a nine:

For people living under the poverty line, “your plan isn’t 9-9-9, it’s 9-0-9,” Mr. Cain said in a policy speech in Detroit. “Say amen, y’all. If you are at or below the poverty line…then you don’t pay that middle 9” – i.e. the individual flat tax.

Mr. Cain’s bold 9-9-9 plan – which includes a 9% individual flat tax, a 9% business flat tax, and a 9% national sales tax – has helped vault him into the top tier of GOP presidential candidates.

But free bread sticks would still be nice.

Herman Cain Tweaks 9-9-9 Tax to Remove Flat Tax for Poorest Americans [WSJ]

Who’s Afraid of Tax Reform?

The last time I saw the family dentist while I was in college, he asked me what I was studying. When I told him I was studying tax accounting, he got a strange, smug look on his face and asked, “what are you going to do when there is a flat tax?”

It’s been almost 30 years since I saw that dentist, and so far I’ve dodged the flat tax bullet. There has been one big tax reform since I started public accounting, and next to getting fired by good old Price Waterhouse, The Tax Reform of 1986 has been the best thing that happened to my career.


The 1986 Tax Reform Act’s 25th anniversary is tomorrow. With talk of radical tax reform in the air, from Herman Cain’s 9-9-9 plan to Rick Perry’s embrace of an old-fashioned flat tax, young tax nerds may lose sleep worrying that this time tax careers really will be legislated out of existence.

Go back to bed. For young tax nerds, radical change can be a huge career boost.

The 1986 tax reforms were enacted during my third year out of school. The local office of my national firm was going to put on a big client seminar, and I was put in charge of organizing the presentation. In the pre-Internet days, we got one paperback copy of the legislation, which I tore apart at the bindings so the presenters could have their part of the law. I proofread the slides, sent them to the photographer, and then manually arranged the presentation in the slide carousel (there was no PowerPoint, kids).

The seminar came off well (I did passive losses), which helped keep me (and the evil manager who didn’t like me) from getting me fired again. But in the following weeks the real benefit began to dawn on me — thanks to tax reform, I suddenly knew more about most of the tax law than everybody in the office who outranked me — including the evil manager. It got me promoted quickly, and it gave me much-needed credibility a few years later when a bunch of us went over the wall to start a new firm.

If there is radical tax reform, it will trash a lot of accumulated tax trivia knowledge that experienced tax nerds trade on. But it will also create huge opportunities for young, smart nerds who are willing to learn the new rules. It will be a great leveller in the profession, and a huge advantage to the young and strong.

But it will probably make it almost impossible for me to sell my collection of 1986 Tax Act books for a good price on e-Bay.

Happy (Belated) Birthday Grover Norquist!

The Godfather of Tax Policy turned 55 yesterday and since I was traveling, I wasn’t able to send out the well wishes on the day of. Sorry, GGN.

Thankfully, there were plenty of people that weren’t so careless:


You’ve got to think that Grove was expecting something from the ATR scamps. He counts their bagel and coffee consumption, after all. No way they’re missing a birthday. Got any birthday wishes for my fellow Swedish influencer? Leave them below.

IRS Office of Chief Counsel Not in the Market for Any New Blood

After just telling you why an accounting career path may be a little more secure than law, a friend of GC passed along this little bit of news from the IRS’s Office of Chief Counsel:

From: [IRS Office of Chief Counsel]
Date: Mon, Oct 17, 2011 at 12:55 PM
Subject: RE: Chief Counsel Honors Program
To: [IRS Counsel Hopeful]

Thank you for applying to the Office of Chief Counsel. Unfortunately, we will not be hiring under the Honors Program for fall 2012. We appreciate your interest and hope that you will consider us in the future. Thank you.

Attorney Recruitment & Retention Office
Office of Chief Counsel, Internal Revenue Service

On the other hand, if you’re interested in running a IRS garage sale, they do have some extra junk on their hands.