Thursday, July 23, 2009

IRS wants tips on rogue tax preparers
TIGTA Wants Tips on Rogue Tax Preparers
Reno, Nev. (July 22, 2009)

Treasury Inspector General for Tax Administration J. Russell George asked tax professionals to provide his office with information on other preparers who are acting unethically or illegally as the IRS prepares to overhaul regulations for practitioners.

In a speech before the National Association of Tax Professionals, George described a series of investigations conducted by his office of tax preparers who had cheated clients and the government. Some had falsely claimed to be CPAs or enrolled agents.

“TIGTA periodically receives allegations about preparers who have stolen tax payments intended for the IRS or tax refunds intended for their clients,” he said. “These often come from preparers who are working with new clients. These clients may come to you because they did not get their refund in a timely manner or they received an inquiry from the IRS about a missed payment or have had a lien placed on their property. If you suspect that a preparer has misrepresented his or her qualifications or is engaging in a scheme to defraud clients or the government, we ask you to call our hotline. Similarly, if you suspect that your client intends to bribe or harm an IRS employee, or if you learn of an IRS employee soliciting a bribe from you or your client, we ask you to call our hotline. Our investigators routinely receive calls from tax practitioners, and they are specifically trained to deal with these types of situations.”

The TIGTA Hotline Complaints Unit can be reached at (800) 366-4484 or George also asked tax professionals to provide feedback on their experiences with the IRS.

In addition, he discussed some of TIGTA’s recent reports on tax preparers and the high rate of problems they had found in audits of unenrolled preparers. He noted that another recent report showed the IRS has trouble keeping track of many preparers because of inconsistencies in the Social Security Numbers, Preparer Tax Identification Numbers and Employer Identification Numbers they use. The report recommended that the IRS require all preparers to use unique ID numbers when submitting returns (see IRS Has Trouble Tracking Paid Preparers).

George also discussed IRS Commissioner Doug Shulman’s recent announcement that he plans to submit recommendations to the Treasury Secretary and the president by the end of the year to better regulate tax preparers (see IRS Plans to Step Up Tax Preparer Regulation). He encouraged NATP members to participate in the upcoming town hall meetings that the IRS plans to hold throughout the country (see IRS Schedules Tax Preparer Regulation Forums). The first one is scheduled for July 30 in Washington, D.C., and the NATP will be represented at the forum.

Wednesday, July 22, 2009

What health reform means for you
The bills are in flux, but it's time to dig in. Here's what the big idea in Washington could mean if you get insurance at work, buy it on your own, or have none at all.
By Jeanne Sahadi, senior writer
Last Updated: July 22, 2009: 10:39 AM ET

NEW YORK ( -- Lawmakers are still far from consensus on how to fix the health care system. So it's too soon to know exactly what reform would mean for individual Americans.

But a picture has started to emerge from two key bills put out by Democrats in the House and Senate. A third bill is expected soon from the Senate Finance Committee.

The first two bills propose:a national insurance exchange on which insurers would compete for consumers' business;

* a public health plan that would compete with private insurers on that exchange;
* and subsidies for financially strapped Americans eligible to buy health insurance on the exchange.

Both bills would also set minimum standards for health insurance policies and require insurers to guarantee coverage for those with pre-existing conditions.

Considered in broad terms, here's how those bills are likely to affect three groups of Americans: those who are currently insured through their employer; those who buy insurance on their own; and the 49 million Americans who are expected to go uninsured next year.

You get coverage at work
Unlikely to see much change: The more than 160 million Americans with employer-sponsored insurance today wouldn't see much change, said Congressional Budget Office Director Douglas Elmendorf after doing a preliminary analysis of the two bills.

That would accomplish one of lawmakers' goals for health reform -- to preserve the employer-based health insurance system.

But it doesn't prevent companies from changing workers' plans if they decide to change the benefits menu or switch policy providers.

At the same time, workers with insurance through their employers are not likely to see lower premiums, Elmendorf told lawmakers last week. In fact, at least initially, their premiums may continue to increase apace as they have for years.

And if workers don't like the health options provided by their employers, they may not have the option of buying insurance on the exchange. That's because the bills include "firewalls" that would prevent them from doing so.

Under the House bill, for instance, only workers who today pay more than 11% of their income for employment-based coverage would be allowed to purchase a policy on the exchange and would qualify for a subsidy.

In all, the CBO estimates that the House bill might allow about 3 million workers with employer-based coverage to qualify to buy subsidized insurance on the exchange. The added advantage for them is that they wouldn't have to change insurance policies bought on the exchange if they changed jobs.

May have to pay a new tax: The most controversial debate over health reform is how to cover the cost. Roughly half is likely to be paid for with new tax revenue.

The House bill calls for a surtax on high-income earners -- starting at $280,000 for singles and $350,000 for married couples. The surtax would run as high as 5.4% on income over $1 million.

But on Monday, House Speaker Nancy Pelosi let it be known that she may push to increase those thresholds so the surtax would only affect individuals making at least $500,000 and couples making $1 million or more.

"It narrows the number of people who would be affected. I think it probably goes a long way in protecting the small businesses we were concerned about and it puts more pressure on our House colleagues who are writing the bill to identify more in savings." Rep. Gerry Connolly, D-Va., told CNN.

The Senate Finance Committee had been heavily focused on taxing a portion of the health benefits that workers currently receive as tax-free income from their employers. But that idea has run into political headwinds.

Whether a benefits tax of some kind ends up in the final package is still anyone's guess. If it does, however, not everyone would have to pay it.

That's because a benefits tax can be set up so that it only targets a certain group of people -- for example, those with very expensive health insurance plans, or high earners with expensive plans.

It's also possible a benefits tax would not be included at all. Another idea reportedly under consideration is a tax on insurers and employers that offer expensive or "Cadillac" plans. Of course, if that happens, it is possible the cost of the tax would be passed along to workers in the form of higher premiums.

You get it on your own
Likely to see lower costs: The people most likely to see a decrease in what they pay for health insurance are those who currently buy policies on their own, Elmendorf said.

Uninsured get free health care

That group could see their costs go down for three reasons: the creation of an insurance exchange; the additional competition from a public plan; and guarantees that insurers could not refuse coverage to anyone with a pre-existing condition, he noted.

If their income qualifies them for a federal subsidy, consumers who currently buy insurance on their own could see their costs go down considerably from where they are today. Under the House bill a family of three making up to $73,240 this year could qualify for some subsidy.

May get help from an employer: The CBO estimates that under the House bill roughly 3 million people could be added to the rolls of those with employer-sponsored insurance. That's because the bill would require companies either provide workers with coverage or pay into the health insurance exchange to subsidize the cost of their policies.

You have no insurance
May get help from the government: Those who are uninsured may get a subsidy from Uncle Sam if their income qualifies. Or they may qualify for Medicaid since both the House and Senate bills would expand eligibility for the program -- under the proposals, eligibility would be extended to those with income up to 150% of poverty level in the Senate health committee bill and up to 133% in the House bill.

Will be required to have insurance: Both bills would mandate that most individuals be insured or pay a penalty. The CBO estimates the House bill would reduce the number of uninsured by more than 68% within 10 years.

- CNN's Dana Bash and Deirdre Walsh contributed to this report To top of page

U.S.-Canada Tax Treaty Will Enhance Mobility
New York (July 21, 2009)
By Michael Cohn
Recent changes in the tax treaty between the U.S. and Canada will have an impact in a variety of areas, including 401(k) contributions and stock options, as well as the ability of taxpayers to move across borders.

“The important thing to note about the changes in the U.S.-Canadian treaty protocol is that these changes are breaking down some of the barriers to mobility from the tax perspective,” said Ernst & Young partner Cheryl Spielman. “The two countries recognize that it’s a very globalized and mobile workforce. The changes acknowledge that people are moving from country to country, and they need to have pensions that are portable, with the associated tax benefits they would have gotten in their home country.”

Under the old rules that were effective for tax years ending before Jan. 1, 2009, pension deductions were allowed only for country-specific pensions — for example, qualified plans in the U.S. and registered plans in Canada. Under those rules, the U.S. did not allow a U.S. taxpayer to deduct contributions made to a Canadian pension plan, and Canada did not allow a Canadian taxpayer to deduct contributions to a U.S. pension plan.

The new rules will allow a deduction in 2009 and subsequent years in two specific circumstances: short-term cross-border assignees, and commuters. In addition, the U.S. will allow employer contributions to a Canadian qualified retirement plan to be made without a resulting taxable benefit to the employee.

“Under the old rules, prior to the protocol, you couldn’t get any tax benefit on your 401(k) contributions,” said Spielman. “You would have to pay taxes on your full income. Similarly, if I were a Canadian person, I wouldn’t get that benefit on my U.S. return for a Canadian qualified retirement plan. The protocol broadened the definition of a qualified plan to include the other country’s plan to give you a benefit.” The change is effective for tax years beginning Jan. 1, 2009.

The protocol also provides guidance for the allocation of stock option benefits between Canada and the U.S., resolving an issue that has been a potential cause of double taxation for some taxpayers. The application of the new guidance to other stock-based incentives is not specifically addressed in the protocol. However, the changes could encourage more mobility.

“A couple of years ago when the stock market was in its heyday, with people sitting on tremendous value in their stock options, key executives who potentially wanted to make a move between the U.S. and Canada wanted to understand the tax implications,” Spielman noted. “They would say, ‘Wait a second, this is going to cost me.’ A lot of these changes are clearly very positive from the standpoint of promoting mobility between the two countries.”

In some of the U.S. states that have close proximity to the Canadian border, for example, it is common for people in one country to commute to the other, particularly in the automobile industry — although even there the effects may be limited, especially as the auto industry downsizes. “I don’t think it will push an individual to gravitate to one country or another,” said Spielman. “It will just make cross-border assignments a lot easier.”

No "Cadillacs" in healthcare reform proposals
By Maggie Fox, Health and Science Editor Maggie Fox, Health And Science Editor – Wed Jul 22, 8:17 am ET

WASHINGTON (Reuters) – Some of the ideas proposed for U.S. healthcare reform could cost patients thousands of dollars a year out of their own pockets, and premiums could end up being too high, according to two reports.

One analysis for the American Cancer Society's Cancer Action Network showed a plan now offered to federal employees, including members of Congress, sometimes costs patients $7,000 a year in out-of-pocket expenses -- many of which a seriously ill patient would have no way of avoiding.

The Blue Cross/Blue Shield insurance plan, operated by Wellpoint Inc, has been called a "Cadillac" plan for its generous benefits by healthcare reform advocates, who compare it to the luxury car. They say it should form the minimum basis of what is offered to Americans under a reworked system.

But Karen Pollitz and colleagues at Georgetown University's Health Policy Institute who analyzed the plan for the Cancer Action Network found that even this plan leaves many gaps.

"It offers good protection by covering the most important benefits without caps and with an overall limit on cost-sharing liability. However, it is certainly not 'Cadillac' coverage," their report reads.

For instance, a breast cancer patient could pay $13,000 for her own care over two years, the analysis found.

President Barack Obama has made reform of the patchwork U.S. healthcare system his administration's showpiece priority and Congress is working on several ideas.

But Congress has run into problems over how to pay for a $1 trillion, 10-year overhaul. Much of the debate focuses on how to provide coverage for 46 million Americans who do not have private insurance and do not qualify for government programs such as Medicare or Medicaid.

A free, government plan is not even being discussed, and both Republicans and Democrats want consumers to pay at least part of their own way. Most proposals include expanding options for personal health insurance.


But advocacy groups such as the Cancer Action Network point out that more than half of all U.S. bankruptcies were linked to medical debt -- and most of these people had health insurance.

"Too many cancer patients are delaying or forgoing lifesaving screenings and treatments because of access problems," said the group's president, Daniel Smith.

One such patient is Angela Kegler McDowell of Conway, South Carolina, a small business owner whose insurance company raised her premiums from $293 a month to $804 a month when her breast cancer returned. In January, the company stopped her coverage completely.

"It took my entire life savings," McDowell, 38, said in an interview. Even with insurance, McDowell estimates her cancer treatments cost her $42,000 out of pocket over five years.

Another report issued this week by the nonprofit Commonwealth Fund found that 73 percent of people who tried to buy insurance on their own in the last three years did not because the premiums were too high.

According to the report, 64 percent of adults with individual insurance spend $3,000 or more per year on premiums, compared to 20 percent of those with employer insurance.

It said patients using employer-provided insurance spent $2,250 out of pocket on average, including premiums, while those with individual market insurance spent $6,750.

A graphic showing state-by-state breakdowns of the uninsured can be seen at

Friday, July 17, 2009

Budget Blow for Health Plan


WASHINGTON -- Congress's chief budget scorekeeper cast a new cloud over Democratic efforts to overhaul the nation's health-care system, telling lawmakers Thursday that the main proposals being considered would fail to contain costs -- one of the primary goals -- and could actually worsen the problem of rapidly escalating medical spending.

"We do not see the sort of fundamental changes that would be necessary to reduce the trajectory of federal health spending by a significant amount," Douglas Elmendorf, director of the Congressional Budget Office, told the Senate Budget Committee. "On the contrary, the legislation significantly expands the federal responsibility for health-care costs," he added.

To read the rest of the article, click on:

The letter from Mr. Elmendorf to Ways and Means Chair Rangel can be found at:

Wednesday, July 15, 2009

Taxing the rich
Tax the rich to pay for ... everything?
It's a politically easy thing to suggest since it's popular with the general public. But doing so may not achieve quite what lawmakers say it can.
By Jeanne Sahadi, senior writer
Last Updated: July 15, 2009: 7:11 AM ET

NEW YORK ( -- There may be reasons to tax the rich more, as a lot of people in Washington are talking about doing.

But to raise taxes on them, and only them, to pay for the country's most ambitious proposals like health care reform, is a problem, experts say.

If nothing else, it makes for some bad math.

"We don't have enough rich people. We could tax the wealthy to extraordinary levels. But we cannot afford everything we want," said Ken Kies, a former director of the Joint Committee on Taxation and currently a tax lobbyist for businesses including insurers.

Yet, rich households are the focus of several revenue generating proposals to help pay for health care reform and other endeavors.

Income surtax: Key committees in the House on Tuesday released a proposal that would impose an income surtax on high-income families -- an additional tax on income over a certain threshold.

The surtax applied in full would range from 1% to 2% for couples making between $350,000 and $500,000. It would range from 1.5% to 3% for couples making between $500,000 and $1 million. And it would be 5.4% for families making more than $1 million.

The Joint Committee on Taxation estimates the provision could raise $544 billion over 10 years.

Millionaire's tax: The Senate is said to be considering a "millionaire's tax" of 5% levied on single filers making more than $500,000 and joint filers making more than $1 million.

Deduction limit: President Obama has proposed limiting the value of itemized deductions for high-income taxpayers.

One idea under consideration in the Senate is to limit the mortgage interest deduction for the wealthy, although that idea is almost certain to face strong pushback from those with ties to the real estate industry, said Jaret Seiberg, the financial services policy analyst of the Washington Research Group, a unit of Concept Capital.

Expanded Medicare tax: Senate leaders are also considering applying the 1.45% Medicare tax paid by individuals to capital gains and dividends, and possibly also on income from properties and partnerships. Currently, the Medicare tax is only levied on earned income, such as wages.

Health care isn't the only big-ticket item driving the push to raise rates on the rich.

Obama has said he wants to make the tax system fairer and raise revenue by letting many of the 2001 and 2003 Bush tax cuts expire for high-income taxpayers.

He also wants to help pay for Social Security reform by subjecting more income to the Social Security tax. Currently, individuals' half of the payroll tax is 6.2% on the first $106,800 of wages. Under a proposal from Obama, people would also then pay between 1% to 2% on income over $250,000.

Finally, Obama has directed his tax reform panel to recommend ways to raise revenue but not increase taxes for families making less than $250,000. That suggests those at higher levels are fair game.

The problem with taxing only the rich
Some of the big ideas kicking around Washington these days may have merit and may be worth pursuing.

But they're not going to be enough if the goals are to enact new initiatives like health reform without adding to the deficit, and without taxing any family making less than $250,000, experts say.

"There's an argument for making the tax system more progressive," said Len Burman, director of the Tax Policy Center. "[But] people are going to have to pay tax or come to terms with smaller government. Right now there's enormous pressure for the government to do more and more."

And by not letting the Bush tax cuts expire for families making less than $250,000, the administration is forfeiting an estimated $2.1 trillion in revenue over 10 years.

Meanwhile, the federal debt held by the public is scheduled to rise from 41% of gross domestic product to 82% by 2019 under the president's proposed budget, according to the Congressional Budget Office. That already assumes the majority of Bush tax cuts expire for upper-income taxpayers.

At the same time, tax burdens across all income groups have been fairly low historically speaking.

Although they pay the lion's share of income tax dollars collected, high-income taxpayers benefited disproportionately from the Bush tax cuts.

But those same tax cuts also increased the ranks of those who end up owing no income tax - the majority of whom are not high income. The Tax Policy Center now estimates that after taking the tax breaks for which they're eligible, 47% of tax-filing households will have no federal income tax liability this year.

Many tax policy experts believe fundamental reform of the tax code -- a reform that simplifies the code and broadens the base of payers -- could be one step toward resolving long-term shortfalls.

Evasion is another concern experts raise when rates are hiked too high or too frequently. If high income taxpayers feel their tax burden too burdensome, they are more likely to seek out legitimate tax shelters. But also the higher rates go, Kies said, "the more it creates an atmosphere for cheating."

First Published: July 14, 2009: 5:53 PM ET

Here is a CNN video on the same subject,

Monday, July 13, 2009

National debt and federal budget
This may or may not be funny, depending on how you look at it. But I think Peter Schiff is spot on.

Here is a similar clip by Pete Peterson, on Charlie Rose on PBS:

And here is an interesting clip on the perspective of President Obama's announcement that he would reduce the federal budget by $100 million:

Monday, July 6, 2009

Small Business Tax Relief Proposal
Sen. Charles Grassley, R-Iowa, has introduced a bill to lower the tax burden on small businesses.

Grassley, ranking member of the Senate Finance Committee, introduced the Small Business Tax Relief Act of 2009. “My bill will leave more money in the hands of small business owners so they can hire more workers, keep paying the salaries of their employees, and make additional investments that will lead to new jobs,” he said in a statement.

The bill includes provisions that would:
• Increase the amount of capital expenditures that small businesses could expense from $250,000 to $500,000 to encourage businesses to invest in new equipment;
• Allow more small C corporations to benefit from the lower tax rates for the smallest C corporations;
• Take the general business credits out of the alternative minimum tax for those sole proprietorships, flow-throughs and non-publicly-traded C corporations with $50 million or less in annual gross receipts;
• Extend the one-year carryback for general business credits to a five-year carryback for small businesses;
• Provide a 20 percent deduction for flow-through business income for small businesses, which are defined as flow-through entities with $50 million or less in annual gross receipts;
• Lower the potential tax burden when a C corporation becomes an S corporation; and
• Expand the net operating loss provision contained in the stimulus bill, allowing small businesses with $50 million or less in gross receipts to get the benefit of the five-year net operating loss carryback.

“I hope this bill gets bipartisan support,” said Grassley. “Job creation is a bipartisan issue and really should be a non-partisan issue.”