IRS Not Suited for Certifying Tax Software Privacy, Accuracy, ETAAC Says

The Internal Revenue Service should not be forced into the “ill suited” role of certifying and enforcing privacy and accuracy standards for tax software providers, but should turn instead to established outside providers for those services, members of an Electronic Tax Administration Advisory Committee (ETAAC) said June 16.

Industry advisers presented their 2010 ETAAC recommendations to Congress to IRS officials, and also made a special report on a new subcommittee formed to address e-file security and tax software policies and programs. The report is expected to be released June 17.

This year’s annual recommendations focus on tax preparer e-filing, business systems modernization, the IRS return preparer review, and new information reporting requirements.

The push to certify that tax software is accurate is coming from a number of different directions, ETAAC Chairman Phillip Poirier, a vice president in Intuit’s consumer tax group, said. The Government Accountability Office has recommended that IRS do a risk assessment of the reliability, security, accuracy, and privacy of tax software.

“Software is a term that is too narrow,” he said. “It’s really all the pipes to get the return from the preparer or the taxpayer to the IRS e-file system.” To that end, IRS has included software in its return preparer review, commenced a tax software risk assessment, and formed an ETAAC subcommittee.

That subcommittee’s principal spokesman, Dave Olsen, said tax software certifications should not be left up to the IRS. “Effective and efficient oversight should not be attempted by trying to force the IRS into what may be ill-suited roles, by making them the direct certifier or enforcer of some of these requirements; but rather it would make sense to rely on third-party certification processes and standards-setting that can be applied in that broader context across the different portions of the industry,” Olsen, director of product management with CCH Small Firm Services, said.

Olsen told BNA that IRS has an interest in making sure standards are put in place for oversight and verification of IRS electronic systems that deal with transfer of tax data. These controls would deal with security and privacy. Oversight and verification of tax software will be necessary to address accuracy and reliability, he said. However, IRS is not the appropriate agent to create these measures, he said. “It does not have the resources or the expertise.”

The standards should be established by a self-regulatory organization with third parties being brought in to review the controls that have been put in place, he said.

Olsen also said there needs to be a full understanding of the differences between professional and self-preparer software. “Professionals do things differently than a self-preparer does,” he said.

Information Reporting

Some stakeholders have recommended accelerating Form 1099 information return reporting, but ETAAC said it has some concerns with that.

The IRS needs to consider the full impact of accelerated information reporting on both businesses and taxpayers, especially small- and medium-sized businesses, said Grant DeMeritte, tax compliance manager with Howard Hughes Medical Institute.

Beginning in 2012, businesses will be required to use Form 1099 to report to the IRS all payments to corporations in excess of $600 for goods or services, not just services and supplies, which had previously been the case, he said.

“We want to make sure the IRS is ready to handle the significant increase in the number of e-filed information returns—and not just the number of e-filed returns, but the potential for an increase in the number of e-filers,” he said. Many businesses may exceed the 250-form threshold for having to file in this category due to the new legislation, which was an offset to a portion of the Patient Protection and Affordable Care Act ( Pub. L. No. 111-148)—a requirement from which corporations were previously exempt.

IRS Response

An IRS official responded to the ETAAC recommendations by saying she heard a consistent theme—that more and better communication is needed. “It’s so important but difficult to do well,” said Norma Brudwick, IRS deputy director for electronic tax administration and refundable credits. She also said IRS recognizes the importance of partnering with the industry, in part because of IRS’s limited resources.

Brudwick also said she was glad to hear that industry understands that IRS is willing to make allowances for taxpayers that do not want to e-file. “We need to really always keep in mind the taxpayer,” she said.

Gustavo A Viera CPA

CPA in Miami Since 1983

www.vieracpa.com

Say Goodbye to Checks – Peer-to Peer Payments Gain Momentum

Small business owners and their customers no longer have to rely on checks to make and accept payments thanks to new peer-to-peer payment services cropping up.

Peer-to-peer payment services, which are being offered from a slew of banks, lets business owners transfer money to a customers’ accounts or vice versa using just an e-mail address or mobile phone number.

Users can conduct the transaction from their existing bank account, which means they won’t have to visit a different Web site to access the service.

“Billions of dollars are transferred back and forth from one business to another via check,” said Steve Shaw, Internet banking and electronic payments group director at Brookfield, Wisc.-based Fiserv (FISV), which later this month will launch ZashPay, its P2P transfer service.

Shaw said more consumers and businesses are looking for ways to make payments sans the check as their comfort level with conducting financial transactions online grows.  “Either the check is put in the mail or handed to someone. It takes time and effort [to cash the check].”

According to Javelin Research, nearly 44% or 38 million of the 86 million online households made at least one online P2P fund transfer in 2009, up from 27% in 2008. Javelin is forecasting 60 million American households will use P2P transfers by 2014. The oldest and most popular form of P2P payments comes via PayPal. With the new services, however, the customer will be able to make the payment through an existing bank account.

Fiserv’s product, dubbed ZashPay, will launch in late June with 100 banks committed to offering the service with more being added each week.

If a bank is offering the service, the business owner would login to the bank account, input an email address and send a message to the recipient and transfer the money. The service lets you make transfers online or via a browser-enabled mobile phone.

The recipient would then login to claim the money, which would automatically be deposited into the account as soon as the next day.

If the banks for the payee and the person receiving the money don’t offer the service, Fiserv is launching a public web site atwww.zashpay.com where after signing up, people can transfer money back and forth. The banks determine the fee the sender of the money has to pay with a suggested fee of 50 cents. ZashPay.com will charge $0.75 for each payment initiated at the site.

The service is just as secure as the existing bill pay service offered by Fiserv thanks to fraud tools built in to ensure the payment is coming from a valid e-mail address and going to a verified location. If a red flag arises, the payment won’t be sent.

For small business owners and their customers P2P lending may be attractive because they will no longer have to write a check, buy a stamp, mail it and then wait for the check to clear.  Shaw noted small businesses can use it as a way to manage and reconcile invoices.

“It helps from a convenience and speed perspective because they can reconcile more accounts,” said Shaw.

Fiserv with ZashPay isn’t the only financial company launching P2P payment services. CashEdge of New York has its Popmoney P2P payment service and in May announced Bank of the West is using the service.

Like ZashPay, Popmoney lets bank customers send money from their bank account using a recipients email address, mobile phone number or bank account information.  Intuit has its PaymentNetwork service that charges small businesses 50 cents per payment received. Like the other services with PaymentNetwork the small business would receive payments from anyone with an email address with the funds directly transferred into the small businesses bank account.  Among the banks offering P2P payment services are PNC (PNC)  and Wells Fargo (WFC), to name a couple.

Gustavo A Viera CPA

CPA in Miami Since 1983

www.vieracpa.com

Certified Public Accountants, the Preferred Financial Planner

The time has come to take stock of the options that Certified Public Accountants (CPAs) have for their clients’ financial planning needs. Whether it is incorporating a financial-planning practice in a firm, partnering with a Miami CPA financial planner or referring business to a Miami CPA financial planner, never has there been a greater number of resources and guidance to help the Miami CPA firm develop an additional service line, the sole practitioner to develop a new practice for the benefit of clients and colleagues or for CPAs to cultivate relationships with CPA financial planners to work with the CPA, PFS to help ensure that their client is well cared for.

Many thousands of Miami CPA’s and across the United States practice financial planning, a profession with many facets. For years, members of the accounting profession have taken tepid steps forward only to step back to evaluate what may be appropriate for the firm and for their suite of services provided. Recognition of barriers is the important first step to the integration of financial planning into an additional practice line within the firm. A greater focus should be examined on what is making CPAs overwhelmingly successful with their clients; the holistic approach that CPAs across America take when engaging with clients. The anecdotal evidence points to the clients of CPAs being in far better shape than most as it applies to their clients’ finances. When it comes to barriers, one key obstacle is a lingering discomfort with the misinformed notion that CPAs would recommend specific product. Others are more fundamental. There may be a cultural clash within firms between the profession of financial planning and the more traditional services. During the ramp-up years, there is a feeling that the financial-planning practice is being subsidized due to the revenue streams achieving insufficient results when compared to traditional lines of the practice; usually for the first five years. When the building of the practice is complete, the CPA financial planner enjoys a significantly greater revenue stream and the work hours may not match the other areas of traditional practice.

In addition, others may find it difficult to distinguish the profession of CPA financial planning from the financial services industry. In fact, the very possibility of a loss in a portfolio increases trepidation. While many non-CPA financial planners have a primary focus on investments, there are key aspects that separate CPAs from the financial services industry, including the deep tax knowledge they bring to the table, the holistic approach of covering all elements of a client’s financial plan as well as a high standard of care. There has been talk of how the fiduciary standards may not be applied to certain financial planners and exempting some relationships from fiduciary standards that focus on one or two areas of financial planning. The discussion among CPA, PFS financial planners is not how to escape fiduciary responsibilities with their client, but rather questioning the appropriateness of escaping fiduciary responsibility in financial planning, even if only a couple of the elements of the financial planning process are engaged.

Regardless of how we feel about the investment side of planning, the reality is that markets rise and fall and that most money is made in a down market, which is counterintuitive. If we lose a fraction of what the S&P 500 loses, then we don’t have to come back nearly as much and can give significant benefits to our clients on the rebound. The 58 percent market drop this last time around requires a greater than 100 percent return to get back to even. CPAs in financial planning understand what risk is, how to explain it to clients and help clients assess their risk and position assets that are consistent with their risk tolerance.

Make no mistake about it. There are plenty of balanced portfolios that have similar risk characteristics to being fully invested in the stock market. I would suggest that any CPA who does not currently have a professional relationship with a CPA, PFS (Personal Financial Specialist) to pick up the phone and have a CPA, PFS financial planner explain why financial planning is based on the very powerful questions identifying what the client’s mission, values and goals are before they recommend specific strategies and products in all aspects of planning. To find a PFS in your neighborhood, go to http://www.findapfs.com. For investments, spend some time with a CPA, PFS to discuss risk, portfolio volatility and the steps the CPA, PFS goes through to ensure that clients are well positioned to weather any economic storm. Any perception of similarity between CPA financial planners and the financial services industry is not only incongruent with reality, it could very well invalidate in excess of 100 percent of the benefit clients derive from your tax-and-accounting expertise. The comparison is similar to CPA tax preparers and enrolled agents. While we would all agree that enrolled agents provide important and valuable services to society and recognize that some enrolled agents can stand shoulder to shoulder with CPAs preparing taxes, generally there is a significant additional benefit that CPA tax preparers bring to their clients.

Given the markets that have always been volatile throughout American history (Table 2), clients cannot afford to risk working with those who consistently demonstrate a heavy bias toward firm products that vanish into the haze after they post inferior results. While it is recognized that across America firms provide some very important products, CPAs apply analytical tools and due diligence to evaluate specific investment options to ensure that the client receives service in an unbiased and objective environment. As I travel across America, I have borne witness to CPA, PFS after CPA, PFS who delivered dynamically different results from their non-CPA peers. This is not to say that there aren’t any extraordinary non-CPA financial planning practitioners, because there are. However, on the whole, the CPA, PFS has a background and experience that is significantly more beneficial to clients than the non-CPA financial planners.

CPAs tend to focus on a variety of issues and take time to explain the most critical areas of investment planning. Just three technical areas discussed involve risk and the specific dollar impact that ups and downs can have on a portfolio with 95 percent confidence, what makes a good long-term investment and set the table on how money grows over time (the power of compounding) This is a brief sample of just one area of financial planning.

If firms recalibrate their perspective toward financial planning, it will come with the recognition that it is a terrific time for accounting firms to evaluate and add financial services as an additional service line for clients or when a conflict arises, to work with other CPA firms to work together in an environment to deliver superior planning services to their clients.

Gustavo A Viera CPA

CPA in Miami Since 1983

www.vieracpa.com

Do Americans Pay Too Much in Taxes?

Nobody likes paying taxes, but it’s the only way to pay for those basic government services that everyone agrees are necessary, such as defense. There is no agreement, however, on a host of other government services that push up spending, which means there is no consensus on how high taxes need to be. In fact, the Tea Party movement grew out of a sense that taxes are too high. “Tea” is actually an acronym for Taxed Enough Already.

But are we?

Historically, taxes are actually fairly low as a percentage of personal income, according to the Bureau of Economic Analysis, and as a percentage of GDP, according to the Organization of Economic Development. They’re also low in comparison with the rest of the world. Of 30 developed countries across the world, including all of western Europe plus South Korea, Canada, Mexico, Japan and a handful of eastern European countries, the U.S. ranks fifth lowest measuring as a percentage of GDP. And that includes state and local taxes plus payroll taxes for unemployment, etc., as well as federal income taxes.

Though 2006 is the latest year for which data are available, the rankings don’t shift much from year to year — just one or two spots.

Which raises the opposite question: Are U.S. taxes too low? Should they be raised to help close the budget deficit?

Not necessarily. Keep in mind that low taxes typically correlate well with high productivity gains. Ireland, Poland, South Korea and Slovakia, for example, enjoyed strong growth in labor productivity in the last expansion. All have subpar tax burdens. So higher taxes could have a negative effect on productivity, which would slow growth.

It’s something to think about as Congress searches for tax hikes in order to offset spending and reduce the deficit.

Gustavo A Viera CPA

CPA in Miami Since 1983

www.vieracpa.com