Thursday, December 20, 2012

Gun Control

People with children in their homes are acquiring guns at record rates, supposedly to protect their homes and children. What those people refuse to acknowledge is the chances of their children dying before maturity increase markedly when guns are in their homes. Certainly, the chances of the children dying of gunshot wounds goes through the roof.  In each of 2008 and 2009 236 children died in the United States from gunshots.  That’s a two year total of 472 small children. In 2008, 28 of those deaths were classified as accidental and in 2009, 33. []
Claims by parents that they have educated their children to leave the family arsenal alone are so much horse manure.  Almost every child who has shot him/herself or a playmate had been strictly instructed that guns were not toys, guns were to be left alone, adults should be called if a gun were discovered, etc. etc. Kids don't follow the rules. Kids believe themselves to be invulnerable. Kids don't understand the permanency of death.
Perhaps worse are suggestions to arm school teachers.  Cops spend hours every month renewing their training, practicing, running scenarios and they still occasionally shoot the wrong person. Anyone who thinks armed, half-trained school teachers will increase safety in the schools is a lunatic or a moron.

Wednesday, July 25, 2012

Penn State and the NCAA

The National Collegiate Athletic Association (NCAA) has hammered Penn State and hammered hard. A $60,000,000 fine (money to be used in child abuse programs NOT affiliated with Penn State) and the vacating of the 112 Penn State victories that occurred after Joe Paterno learned of Sandusky's actions led the list. The sanctions generating the most controversy are a four year ban on participating in post-season bowl games or appearing on TV and a reduction in scholarships.

In his column in yesterday's Richmond Times-Dispatch, Paul Woody argues that those latter two punishments are too heavy. In a nutshell, Woody argues that the combination will consign Penn State's football program to second class status for much longer than the ban. As he noted, it is clear recruiting quality athletes will be, at best, a challenge. The best high school players will have pro football aspirations and those young men are not likely to give serious consideration to a program with zero post-season play or TV exposure. Even good players who aren't particularly hopeful of a professional football career will prefer programs with post-season hopes and TV coverage. Add to that the NCAA's concurrent ruling that current Penn State players can transfer to another school and play this fall (instead of waiting a year as is the norm) and the future looks very bleak for the Nittany Lions.

I almost always agree with Paul Woody who makes a good case on this issue. This time, however, I disagree with him.

The sanctions imposed by the NCAA have two purposes. One is to punish the wrong doers. Among the wrong doers are the Penn State board of trustees. They need a long lasting reminder of the costs incurred when they fail to meet their responsibilities. (The new president, vice-president, athletic director and football coach need that reminder, too, although the violations of human decency were not theirs.)

The other is to set an example for other colleges and universities that currently impose no meaningful limits on or oversight of their football or basketball programs. Many of the colleges and universities that allow too much power to athletics will ignore the example. But perhaps the academic leaders of one or two or three will see themselves when they look at Graham Spanier (former Penn State president) and decide to make changes. Heck, maybe even an AD will look at Tim Curley (former athletic director) and decide changes need to be made. Miracles happen.

To his credit, Paul Woody didn't offer a general whine lamenting the suffering of innocent people brought about by the NCAA decision. He offered a cogent argument that a specific likely outcome was not an appropriate punishment given the negative long term impact on the Penn State football program that will result and the limited impact on the specific five individual wrong doers. Others, however, have complained  mostly (sometimes only) about the innocent students, the innocent players, the innocent faculty, even the innocent alumni who will suffer because their beloved Penn State football program will suffer. That alone isn't a valid reason for not doing justice.

The only question is whether the NCAA decision meted out justice. Paul Woody thinks is did not. I think it did.

Thursday, July 19, 2012

"Alternative" Financial Institutions

"Alternative Financial Institution" is an unfortunate choice of terms because in some contexts it means useful organizations such as Community Development Financial Institutions.  In the context of this post, however, the term is better viewed as a synonym for vulture. In an editorial on July 17th, the Virginian-Pilot said this:  “If predatory lenders had a trade publication – say, “Usury Today” – they’d undoubtedly rank Virginia near the top in annual roundups of the best places in the nation to do business.”

These institutions (vultures, predatory lenders, or whatever other pejorative you wish to use) include pay day lenders and short-term car title lenders both of which, in my opinion, exist to take advantage of people who are down and out. In Virginia, a car title lender is restricted, if you can call it a restriction, to charging not more than 22% per MONTH. That’s right, these people (for want of a better family rated term) can charge 22% per month.  The law, in its infinite mercy (recognize the sarcasm?), does not allow compounding so 22% per month is  264% per year. Virginia law allows that highest rate on the first $700 borrowed. Interest on the next $700 is “only” 18% per month. Above $1,400, a real bargain rate kicks in, 15% per month.  Another crumb offered by the law -- up front fees are limited actual costs of  recording a lien on the motor vehicle.
Tuesday afternoon (July 17) the Chesterfield County Planning Commission, of which I am a member, heard a staff presentation of a proposed ordinance to regulate where in the county alternative financial institutions might be located along with other restrictions.  In a private conversation with me, one attorney noted the proposal would allow these operations in only 3 locations in the county. My unspoken thought was, “that many?” I let staff, including the assistant county attorney assigned to advise the Planning Commission, know that I want an ordinance as restrictive as possible, given limits placed on the county by state law and judicial precedence.  I clearly expressed my opinion of these operations during the work session when I said, “They take people who are in a hole (and) instead of handing them a ladder, they hand them a shovel.” The Richmond Times-Dispatch has as article today reporting on this part of the Commission’s meeting.
For more information, see this earlier Pilot Online article headlined, “New data shows car title loans big business in Va.”

The above article reports that repossession rates are about 6.5% of loans made resulted in repossession of the motor vehicle (8,378 repos out of 128,500 loans). However, the article also reports 105,542 different individuals took out those 128,500 loans making the repo rate per individual borrower be over 7.9%. Repossession rates on auto loans financed by traditional means (banks, credit unions, new car dealers) don't seem to be readily available although using rough numbers and reasonable assumptions, that rate appears to be not more than the 3% to 4% range.

As always, comments are welcome. 

Edited on July 24 to provide a working link to the news article, “New data shows car title loans big business in Va.”

Friday, June 29, 2012

AICPA - more

When I made my post, "American Institute of Certified Public Accountants," I was unaware of this article, "CGMA ploy brings Cognitors back as CoGMAtors; is AICPA 2.0 next?" which appeared March 1, 2012 on the Accounting Today web site.

The authors of this article clearly and succinctly express my views and concerns on this issue. Unfortunately, my agreement extends to their assertion, "Do not expect the Elite to repent and resign, no matter how embarrassing the situation. They are entrenched and got there by wittingly or unwittingly sacrificing some or all of their self-respect. Surely they would deny it, but their actions reflect these three premises: The institute exists for their benefit, they deserve to be on top, and they can do no wrong."

I also agree with this suggestion, "Do not resign your AICPA membership. Although you may be thoroughly repelled, even disgusted, the institute needs as many principled members as possible to vote this scheme down and provide real leadership."  Unless a critical mass of caring, concerned AICPA members come together to restore the focus of that organization to serving its CPA membership and the profession of public accounting, nothing useful will be accomplished. Bailing out of the AICPA, as desirable as that may be, will do nothing to slow the "Elite's" devaluation of Certified Public Accountant as a meaningful professional certification. In fact, CPAs who are not members of the AICPA should seriously consider joining and adding their voice to those who oppose the course being taken by the current leadership.

Thursday, June 28, 2012

Here's a radical suggestion.

I suggest, after seeing a YouTube video of a woman being bullied, that people who want "to do something" get out their check books and donate money to the nearest shelter for abused women.

Just sayin'.

Wednesday, June 20, 2012

Faculty and Boards of Visitors

One of the great myths of public higher education in Virginia is held by the faculty. They think they make the final decision on anything. The faculty have input on a lot of decisions and sometimes that input is given significant weight by the actual decision makers, the Board of Visitors. One of the things the faculty don’t get to do is decide whether or not the university president is fired. Even though they don’t have final decision authority, faculty members are a valuable and motivated resource to use in making decisions about the mission of a university and how best to achieve that mission.

Another great myth of public higher education in Virginia is held by the Board of Visitors. They think they don't have to worry about faculty views and concerns unless it is convenient to do so. They think the decision style they use running their businesses should be used in their roles of being the final decision authority of their respective colleges and universities. Too many of them believe that once they’ve made a decision, such as coercing a president into resigning, that the rest of the organization should just quietly deal with it and move on. They aren’t used to having their decisions challenged, particularly in public, by those beneath them in the organizational chart.

At the University of Virginia, the Board of Visitors, particularly the rector and vice-rector (fancy academic words for chairman and vice-chairman), screwed up big time.  Those two individuals decided the UVA president needed to go so she’s gone. Maybe they did it the way they did in a misguided effort to minimize public controversy; if so, they really do not understand the academic environment or the deep emotional investment faculty, along with staff and students, have in the well-being of their institution.

Maybe rector Helen Dragas and former vice-rector Mark Kington were bluffing when they told president Teresa Sullivan they had the votes to fire her or, maybe they weren’t.  The way the entire board fell into line when they finally all got together, it seems they weren’t bluffing. Personally, I wish she had forced a meeting with the entire board before giving up to be absolutely sure the votes were there to force her out. Perhaps she didn’t do that because she realized this Board of Visitors was just never going to get it, was never going to understand the differences between running a first class university and running a business.

Complaints by Dragas that Sullivan wasn’t moving fast enough to make changes supports my belief that Dragas just does not understand that running a major university is not like running a business.  Even though the faculty have no legal authority, only a fool would ignore them while making decisions affecting their professional lives and the university as a whole. Any competent change agent will tell you that the people affected by the change have to buy into it. The way you get that buy-in is to involve the affected people in the process from day one even if that involvement is only consultive. Sullivan did that in moving towards useful , successful change at UVA; that got her fired. Let me be clear. Sullivan was fired for using the correct process for bringing about effective, correct, desirable change at the University of Virginia. That process is slow but, any decision process other than absolute dictatorship is slower than a dictator prefers.

The timing of this action by Dragas and Kington does show some understanding of academe. They did it when the presence of faculty and students would be lowest. If that is how they selected the time, they learned that dedication and caring trump vacations and summer jobs.

Today’s issue of Charlottesville’s  The Daily Progress reports that vice-rector Kington resigned right after the BOV appointed Carl Zeithaml (dean of the McIntire School of Commerce) as interim president. He didn’t actually admit he had screwed up but he at least recognizes that healing is needed at UVA.

A potential exodus of talented faculty may be starting. In the same article, The Daily Progress reports that William Wulf (AT&T Professor of Computer Science and University Professor) has resigned. Wulf is quoted as stating in his resignation letter, ”I do not wish to be associated with an institution being as badly run as the current UVA.” Note that few faculty members who can’t find another job will be able to do what Wulf did. 

The ones who do leave will be the best and the brightest, the ones with the skill set that allows them options other than working for an organization they believe to be incompetently or unethically managed. I’m not saying everyone who stays at UVA couldn’t find another job.  I am saying it takes a great deal of moral courage to do what Wulf did. Also, in a faculty as large as UVA’s there are, without doubt, those who will stay because they believe the Board of Visitors did the right thing even if in the wrong way. Others will remain because of a sense of duty to the university, either hoping they can help fix the problems or being resigned to going down with the ship.

There is one thing I am fairly certain of.  Teresa Sullivan will not return as president of the University of Virginia without several more resignations by the Board of Visitors.

Monday, June 18, 2012

American Institute of Certified Public Accountants

I’m a member of the AICPA.  I get really useful, relevant materials that greatly assist my practice of public accounting. I also get cheap insurance. So despite what I say below, I don’t believe the AICPA is all bad.

The AICPA's mission is to provide members with the resources, information and leadership that enable them to provide valuable services in the highest professional manner to benefit the public, employers and clients. In fulfilling its mission, the AICPA works with state CPA organizations and gives priority to those areas where public reliance on CPA skills is most significant.”

The mission statement used to be to provide CPAs with resources, etc. but no more.  Since you do not have to be a licensed CPA to be a member of the AICPA it is not surprising that “CPAs” was changed to “members” in the first sentence . The last sentence of the current mission statement reads like an afterthought.

The “AICPA Values and Vision Statement” doesn’t mention CPAs at all. The first sentence reads, “The AICPA is the premier national professional association in the United States.” While that may be true, it used to read, “The AICPA is the premier national professional association in the United States of Certified Public Accountants.”

Over the past few years, a member of the AICPA could acquire another AICPA issued professional designation by claiming to have the required experience and paying a few hundred dollars. Part of the marketing campaign was to get in early so you wouldn’t have to take the exam which would become mandatory for the new designation in the near future. Examples include Certified Information Technology Professional (CITP) and Certified in Financial Forensics (CFF). With the newest “certification for dollars” (Chartered Global Management Accountant), people don’t even have to be AICPA members to get a few more letters to tack on behind their names.

Voting membership is now available to non-CPAs who have done everything (gotten the education, passed the exam, obtained the experience) but have never bothered to actually get licensed as CPAs.  This is purely an effort to gain members and to increase revenue for the AICPA.  It has nothing to do with serving what, so far, is still the core constituency of the AICPA, Certified Public Accountants.
I am not the only CPA member of the AICPA who believes the top management of the AICPA has forgotten its original mission, its primary reason for existing. The primary mission of the AICPA was and should be to help CPAs be better CPAs.  Another  important function was and should be to enhance and protect the CPA brand. I, for one, do not see "certification for dollars" sold by the major CPA professional organization as protecting the CPA brand or assisting CPAs in being better at what we do.

I'm not sure if I'm being cynical or just fatalistic when I ask when is the Institute going to put forth the idea of changing the organization's name to something like Global Institute of Accountants (GIA)?  Since you no longer have to be a CPA to be a voting member, or even an accountant, it appears to me to be a real possibility.

If the AICPA were really concerned about the profession of being a CPA we would be seeing more focus on business ethics, as one example, than on growing our membership by adding non-CPAs to the rolls. As another example, if the AICPA were really concerned with enhancing the CPA brand then, the first, iron clad requirement for all these new certifications would be possession of an active CPA license.  That latter used to be the case but the CGMA is the first exception.

So what do I recommend? First,  the Virginia State Board of Accountancy should revise its rules so that only AICPA members who are licensed CPAs are allowed to use the phrase “Member of the AICPA”  on their signage, business cards, advertising etc.  A similar rule should be put in place for membership in other organizations using CPA or Certified Public Accountant in their names.  Failure to prohibit such use could easily create the impression that those non-CPAs were licensed Certified Public Accountants.

Second, I suggest anyone seeking professional services use professional designations only as a first filter in making a choice of provider.  If the AICPA will give you a credential simply because you say you have the necessary training and experience, then what are some other designations worth?

As I said in the first paragraph above, the AICPA is not all bad. In fact, it is a good organization of high value to CPAs. It should be noted that most of the useful work is done by volunteers and by AICPA staff who are well below the policy making level in the organization.  I am concerned, however, that the Institute is heading down a path that will make it less useful to Certified Public Accountants.  Its injudicious approach to membership requirements and manner of granting other certifications will make it less credible as an organization to government, business and the investing public.

Friday, June 15, 2012

The Tolling of Interstate 95

In my role as a Chesterfield Planning Commission member I was appointed, in January of this year, to the Richmond Area Metropolitan Planning Organization (or RAMPO). RAMPO exists to allocate federal highway money to specific projects in the Richmond area.

To do that, we need to know what highway projects are being funded from other sources so we don't duplicate efforts and stuff like that. Yesterday, we got an update on the tolling of I-95 proposed by Governor Bob McDonnell back at the start of his term. VDOT is moving forward on that idea. Their proposal is a single toll station in Sussex County north of Emporia collecting from traffic travelling in both directions. The toll would be $4.00 each way ($12 for 18 wheelers). To reduce avoidance tactics,  those leaving I-95 one or two exits before the toll station in each direction would pay $2.00 and those entering I-95 one or two on-ramps after the toll station would also pay $2.00. Thus, through travelers would, in theory, still pay $4 (or drive on local roads for even more miles). This plan is expected to generate $40 million per year.

There is a pot of federal money for maintenance of Interstate highways. Virginia gets money from that pot but if a toll is put on I-95, none of that Federal Interstate maintenance money can be spent on I-95. We will still get all those dollars but they will have to be spent only on the other Interstate highways in Virginia. So it appears as though the effect of tolling I-95 will decrease the amount of maintenance done on I-95 by $10 million and increase the maintenance on other Virginia Interstates by $50 million. That wouldn't be a bad deal except I-95 needs  more maintenance, not less.

But, there's an out according to the VDOT person making the presentation. Other federal highway money (he used bridge replacement as an example) isn't restricted to a specific set of highways but is often restricted in other ways as to how it can be spent. Another Interstate's maintenance activities could get a chunk of this $50 million being taken away from I-95 (say, $10 million used to replace a bridge) and transfer over to I-95 a similar amount (say, $10 million of bridge replacement money).

This is all well and good as long as I-95 needs more bridge replacement money than is currently planned to be spent on that highway. Well then, the VDOT guy would say, transfer safety money instead or some other specified use money to meet I-95's needs.

All well and good again as long as the restrictions on how these other pots of federal highway money can be spent don't keep enough of those dollars from being used on I-95.

 In short, $50 million per year currently planned for use on other Virginia highways will have to be spent on I-95. If that doesn't happen, the drivers paying tolls on I-95 will be funding maintenance of other Interstates in Virginia.

The VDOT proposal also calls for "open road tolling." That is, drivers will be expected to have transponders in their vehicles like EZ-Pass and to pay their tolls using that technology. As is the case on 895 and the Powhite Parkway, photos will be taken of toll evader's  license plates and they will receive a bill in the mail. Guess for yourself how many out-of-staters will respond favorably to that. (Don't forget, VDOT also wants to add a $1.00 per month fee for having a transponder in your car.)

Finally, I'm not persuaded that tolling I-95 is worth the costs. First, I find the projected toll revenues and operating costs to be optimistic at best. Second, the costs imposed on people in Sussex county to either pay $2 to $4 each way for local trips or to drive out of their way are ignored. Those costs, measured in dollars may be low in the greater scheme of things but they are significant to the people bearing those costs. Just ask Brandermill/Wood Lake residents who pay around $8 per day in tolls just to drive to and from work. (By the way, I don't whether people who live in Brandermill or Woodlake and work in downtown Richmond to have much sympathy for the potential plight of Sussex county commuters but, I expect those Chesterfield residents can guess the reactions of affected Sussex citizens.) Third, the qualitative costs of having additional traffic on US 301, US 1 and other local roads can't be measured in dollars so, even though they exist, those costs are ignored.

Public hearings haven't been scheduled yet but we're promised they will happen some day, real close to the time the application is due to the federal Department of Transportation.

For not much more information on tolling I-95, go to VDOT's Interstate 95 Corridor Improvement Program web page.

Friday, May 18, 2012

For those who would be Christian (or would behave like one)

Matthew 22: 36-39
36 “Teacher, which is the greatest commandment in the Law?”
37 Jesus replied: “‘Love the Lord your God with all your heart and with all your soul and with all your mind.’ 38 This is the first and greatest commandment. 39 And the second is like it: ‘Love your neighbor as yourself.

Luke 10: 25-37
25 On one occasion an expert in the law stood up to test Jesus. “Teacher,” he asked, “what must I do to inherit eternal life?”
26 “What is written in the Law?” he replied. “How do you read it?”
27 He answered, “‘Love the Lord your God with all your heart and with all your soul and with all your strength and with all your mind’; and, ‘Love your neighbor as yourself.’”
28 “You have answered correctly,” Jesus replied. “Do this and you will live.”
29 But he wanted to justify himself, so he asked Jesus, “And who is my neighbor?”
30 In reply Jesus said: “A man was going down from Jerusalem to Jericho, when he was attacked by robbers. They stripped him of his clothes, beat him and went away, leaving him half dead. 31 A priest happened to be going down the same road, and when he saw the man, he passed by on the other side. 32 So too, a Levite, when he came to the place and saw him, passed by on the other side. 33 But a Samaritan, as he traveled, came where the man was; and when he saw him, he took pity on him. 34 He went to him and bandaged his wounds, pouring on oil and wine. Then he put the man on his own donkey, brought him to an inn and took care of him. 35 The next day he took out two denarii and gave them to the innkeeper. ‘Look after him,’ he said, ‘and when I return, I will reimburse you for any extra expense you may have.’
36 “Which of these three do you think was a neighbor to the man who fell into the hands of robbers?”
37 The expert in the law replied, “The one who had mercy on him.”
Jesus told him, “Go and do likewise.”

Fairness and Equality

Michael Paul Williams' column in today's Richmond Times-Dispatch should be read by all reasonable people.

It is no surprise, though disappointing, that many of the arguments used by people like Robert G. Marshall to justify bigotry against gays were used by people like George Wallace to justify bigotry against Blacks.

The more things change, the more they stay the same.

Sunday, April 29, 2012

Scorched Earth

A friend and I saw the play, Scorched Earth, at the Barksdale Theater (Willow Lawn) last night. It is a powerful and challenging production in many ways, not the least of which is the question of whether a mixed race baby, dead shortly after birth, can appropriately be buried in the cemetery of her white mother's church.

That isn't the only thought provoking moral question posed by this play. Based on author/playwright David Robbins' book of the same title, the audience is challenged to respond to conflicts of truth versus justice, forgiveness versus accountability and more.

Don't expect everything to be tied up in a neat little package with all the questions answered. During the play I said to myself more than once, "I didn't see that coming." Since then I've been asking myself, "what happens next in that town," and "did that character do the right thing?" During a Q&A with Robbins and some of the actors after the performance one audience member called out, "sequel" as these unanswered questions were being discussed.

The acting was superb. There's not a weak link in the cast. The set and lighting contributed greatly to the effectiveness of the performance. Director Steve Perigard helped the actors use Robbins' words to craft a great evening. A few ironic chuckles were generated during the show but this is definitely not a laugh-fest.

Scorched Earth is a joint production of the Barksdale and Theater IV and runs through May 20th. Show times and tickets are available here.

Tuesday, April 17, 2012

Tax Season and Tax Audits

Today marks the "official" end of busy season for most CPA firms and other tax professionals. Now all we have to do is deal with returns our clients agreed needed to be extended. Since those extensions are for six months, there will be another mini-busy season ending on October 15th.

Returns get extended for a number of reasons, most of them related to missing information that should be provided to our clients by partnerships, small business corporations (S-corps) and investment managers. Procrastination being what it is, many of those returns will not be completed until this autumn.

Another source of business for tax practitioners is IRS audits. Tax audits are most often handled by mail and are, reasonably enough, called correspondence audits. The IRS sends a letter to the taxpayer (called a CP2000 or 30-day letter) informing the taxpayer that he, she or they failed to include some income on their tax return of a recent year and assessing taxes, interest and penalty for that omission. The taxpayer has 30 days to respond. If the taxpayer doesn't respond, a 90-day letter is issued. At that point, the taxpayer has 90 days to resolve the issue with the IRS or to file a petition with the United States Tax Court.

Too many people respond by writing a check. If the amount is significant, don't do that. The amount the IRS wants is often more than the taxpayer owes. For example, suppose you bought some stock a few years ago and paid $3,000. In 2010, you sold that stock for $2,000 but forgot to report the sale on your tax return. When the IRS notices, they will send you a bill for back taxes on the full $2,000 as if it were ordinary income -- about $500 for most people plus a year's interest ($15) and penalties ($15 minimum, maybe another $100 for being negligent) for a total of as much as $630. However, instead of owing more taxes, this taxpayer is owed a refund for the missing $1,000 capital loss ($150 to $250 for most people). That's a swing of over $780 to $880. And, that is why, when the IRS says you owe more money, you should seriously consider hiring a tax professional (Certified Public Accountant or Enrolled Agent) to resolve the issue, particularly when you know there are unreported costs associated with that income you forgot to report.

Correspondence audits are sent out year round. More detailed audits tend to occur more often in the summer and fall when either the taxpayer is invited to the IRS office (an office audit) or the IRS visits the taxpayer (usually a business) at the taxpayer's location. In both cases, the taxpayer should engage the services of a tax professional to represent his or her interests.

Again, the IRS has ways of learning about income you may have omitted from your tax return. They don't have a way of determining the deductible costs you incurred creating that income. Do not automatically write a check but, also, do NOT ignore correspondence from the IRS. Deal with it and deal with it by the specified deadline.

Thursday, April 5, 2012

Audit Protection Racket

Someone might ask, "Hey, Bill, why don't you get into the audit protection racket?" Because it's a racket, I would reply.

On average, 3% or so of the tax returns filed in a year are audited. Averages are deceiving. If all your income is from W-2s, interest and dividends then your chances of being audited are probably immeasurably small (not counting those notifications by mail that you left out the interest reported on a 1099).

So what about these outfits offering "audit protection?" They claim for a low monthly fee that they will represent you if you're audited by the IRS. For example, one of them offers four plans, the 2nd lowest cost one being what they call their "Premium" plan. If you're audited, you get up to 20 hours of a professional's time to deal with the IRS on your behalf. To get that "protection," you pay $12.95 per month.

Let's do what accountant's do. Let's run the numbers. Let's assume that 100 people buy that "Premium" coverage which means the provider takes in $1295 per month or $15,540 per year. A generous assumption would be that 2 of those returns would be audited during the year. The audits I've handled required 4 or 5 hours of my time but let's assume the average here is 7 hours and the provider's hourly cost including direct overhead items is $300 per hour. That means $4,200 go out. Gross profit on the year from those 100 suc... er .. clients is over $11,000.

Each individual pays about $155 per year for "audit protection" (but see below). If the taxpayer passed on this deal and just hired a CPA or EA if and when he/she were actually audited, the cost would probably be less than $2,000 and often a lot less. You would have to be audited about every 12 years, about four times the average, to be money ahead on this deal.

Besides 20 hours of audit defense time and 60 minutes of telephone time, the "Premium" package also says you get $5,000 of "Audit Protection." What is that? I'll tell you what the seller wants you to think. They want you to think they will pay the first $5,000 of any balance due if you get audited. Don't think that because it is NOT true. If you dig into the membership agreement you learn that $5,000 is the maximum value of the services they will provide you if you're audited.

In general, the IRS has three years to audit a properly filed tax return. If you filed your 2008 tax return on or before the April 15th 2009 due date, the IRS has until April 17th of this year to initiate an audit (unless you failed to report a bunch of income in which case they have until April 15, 2015). For most situations, if your 2008 return was going to be audited you would have found out about it in 2010 or 2011 at the latest.

Here's another gotcha. The membership agreement defines "covered return" as "a tax return for a single tax year in which the member was active and in good standing with us and at the time of such Internal Revenue Service Audit the member was and is currently an active member in good standing." What does that mean if you joined up today? First, it means tax years occurring before you joined aren't covered. You didn't join in 2011 so 2011 and earlier years aren't covered. Second, even though 2012 would apparently be covered you have to maintain your membership until that year is actually audited or you're not covered after all. So, scratch that $155 above. It's really going to cost you about $310 to have 2012 covered and you probably won't be audited anyway.

There you have it. These guys are offering a better deal (for themselves) then selling extended warranties on electronic goods or running a casino.

One more thing, these audit protection outfits have a very poor track record of actually providing the promised services to their clients that are actually audited. You pay your money, you get audited, you inform your audit protection company, they do nothing, the IRS hasn't heard from you or anyone else and concludes you're a scofflaw, you pay the IRS even more than the original assessment, the racketeer goes on to the next victim.

Audit Reports on the IRS - the not perfect and the pretty bad

The Treasury Inspector General for Tax Administration (TIGTA) has issued two press releases dealing with IRS operations. The first, issued on April 3, is headlined, "IRS Computer Security Center Effective, Could Be Better." The problems with Computer Security Incident Response Center (CSIRC) include the "host-based intrusion detection system is not monitoring 34 percent of IRS servers, which puts the IRS network and data at risk." Overall, though, CSIRC is described as "effectively performing most of its responsibilities for preventing, detecting, and responding to computer security incidents." And, "The IRS agreed with the recommendations and corrective actions are planned or in process for five of the six recommendations." The press release is here and the audit report is here.

The 2nd press release, issued today, is not so favorable. "TIGTA Finds IRS Designated Payment Codes Inaccurate and Ineffective." The IRS is supposed to keep track of payments from tax payers in a manner that allows appropriate people within the IRS to later determine what a payment was for. This is important when determining what additional collection actions may (or may not) need to be taken. Designated Payment Codes (DPCs) are supposed to be used to provide that information when the payment is related to an IRS enforcement action. "TIGTA reviewed a statistical sample of 138 subsequent payments that posted to taxpayer balance due accounts. Auditors determined that 106 (77 percent) of the 138 subsequent payments were processed without the required DPC. In addition, 11 (34 percent) of the 32 subsequent payments that had a DPC were not accurate." 138 may not sound like a large sample but if it was randomly selected from even a very large population, then it probably gives a good picture of that population. Part of the problem is the IRS does not have DPCs for many payment types and the procedures for applying DPCs are inconsistant. The press release conclusion states, "TIGTA made five specific recommendations to encourage the IRS's more consistent and accurate use of DPCs. IRS management disagreed with TIGTA's findings and recommendations and said they plan to complete their own review of DPCs. TIGTA noted that the IRS has already completed an internal study and did not use its results due to concern over its reliability. The IRS took no further action except to initiate another study." The press release is here and the audit report is here.

There have been enough horror stories about computer systems being hacked into for people to understand threats implied in the April 3 press release. Not coding payments correctly may not be seen as that big a deal -- until you make a payment and the IRS says you didn't because they couldn't code it properly. Sure, the problem gets worked out eventually but not until you (or your accountant) have spent a lot of time proving you did what you said you did.

Taxpayers can maximize the chances of receiving proper credit for a payment by following the related instructions. Send the payment to the correct address. Include any required documentation. Indicate on the memo line of the check what the payment is for.

For what it's worth, this statement caught my eye. "... the IRS has already completed an internal study and did not use its results due to concern over its reliability. The IRS took no further action except to initiate another study." One definition off irrational behavior is doing the same thing over again and expecting a different outcome. I guess (or hope) the second study is being conducted differently from the first.

Wednesday, April 4, 2012


The ads are typical and grossly misleading. "Settle your IRS debts for pennies on the dollar." Yeah, right, 98 pennies on the dollar.

A couple of weeks ago, one of the better known (advertising does work) of these outfits filed for bankruptcy, "just as it was preparing to head to court to defend itself from charges of deceptive practices leveled by the Texas attorney general." Now, the verdict is in. A Texas jury as decided that TaxMasters has to pay $195 million in restitution and civil penalties. It remains to be seen whether anyone will face criminal charges.

In fact, if you've been hit with an IRS assessment for back taxes, interest and penalties then you probably should engage a tax professional to represent you. For administrative appeals within the IRS (the usual first step) an Enrolled Agent (EA) or Certified Public Accountant (CPA) can provide the assistance you need. If you're going to court, then an attorney will be required. 

Those IRS assessments are often wrong, at least in part, and a tax pro can help identify those errors. Even if the IRS is correct on the amount of taxes owed, it is still often possible to get penalties removed or reduced if your true story is good enough. In short, do not blindly assume the IRS is correct and send them a check. Get help FIRST.

There are plenty of local CPAs, EAs and tax attorneys who can help you if you have tax problems with the IRS. You do not need to go online to hire some outfit in Texas, Nevada, Tennessee or Kansas.

Sports Quest

As you probably know by now, Dr. Steve Burton is now the former CEO of SportsQuest in Chesterfield County. The new CEO, Dudley Duncan, was selected by a new board of directors.

So far, the project has been a mixture of successes and failures. A series of soccer tournaments have had major positive impacts on the county economy, particularly restaurants and hotels in the immediate area. For example, a few days after one of the first week-end soccer events, an employee at Panera's on Brad McNeer Parkway reported that Saturday had been the busiest in the history of that location. Noteworthy is that interest has already been expressed by another sports/recreation business (RISE) in acquiring the soccer fields.

Not much else has gone right for SportsQuest. Unpaid bills are in 7 figures, law suits abound, and the state AG's office is in the mix.

My own view is the overall project will be a success. It may continue as a single operation or it may be in pieces but there will be an extensive presence of outdoor (for sure) and indoor (farther into the future) recreation on the current SportsQuest property.

Also in my view, Steve Burton is part of a group of entrepreneurs who can generate great ideas but often have difficulty with the implementation. In this case, I believe he tried to go too far, too fast. Hopefully, Dudley Duncan and the new board of directors will bring a more measured, considered pace as opportunities are identified and exploited.

News stories are here, here, and here.

Monday, April 2, 2012

Deadline Approaching

April 17th is a deadline for more people than those of us who have to file a 2011 federal income tax return.

It is also the "drop dead" date for people who have not yet filed their 2008 tax return and are owed a refund. That's because the Internal Revenue Code (a law passed by Congress, not made up by the IRS) says that you have three years from the original due date to file a tax return and get any refund owed to you. The due date for 2008 federal tax returns was April 15, 2009 -- almost three years ago.

Suppose you haven't filed any returns for 2008, 2009 and 2010 and you're due a refund for 2008. The IRS might hold your check for 2008 until you file 2009 and 2010, just in case you owe for those years. They will also hold a refund if you have any other unpaid tax liabilities they know about or for things like back child support. Even then, filing your 2008 return could reduce those debts which is a good thing.

Thursday, March 29, 2012

Traffic Alert - Richmond Area

March 29 (Thursday)
I-95 north/south – From 8 p.m. Thursday through 6 a.m. Friday, I-95 will be reduced to one travel lane in each direction at Laburnum Avenue (mile marker 79) as crews replace the I-95 northbound bridge over Laburnum Avenue. I-95 north traffic will merge onto the southbound bridge. Both I-95 north and south traffic will use the southbound bridge to maneuver around the construction. Also, Boulevard drivers will be restricted from accessing the ramp to I-95 north during the nightly bridge replacements. Expect major delays along I-95. Use I-295, Route 288 and the Downtown Expressway (toll)/I-195 to bypass the construction.


Monday, March 26, 2012

Abusive Home-Based Business Tax Schemes

One of the tax breaks for some start-up businesses is the fact that some otherwise non-deductible personal costs become deductible as home office expenses if certain conditions are met. To be qualified, the home office must be used regularly and exclusively for the taxpayer's trade or business. The home office deduction amount is limited to the profits earned by that trade or business.

Unfortunately, criminals have used, and continue to use, this feature of the tax law as a part of schemes to rip off unsuspecting people. The IRS has information on some of the perpetrators of these schemes here. These include people who have gone to prison for tax evasion, money laundering, fraudulent use of the U.S. mail and other crimes.

By the way, most of these home based business cons were pyramid schemes as well.

Friday, March 16, 2012

Damages for Physical Injury or Illness

The general question is, "if I get compensation for damages someone else has done to me, is the money taxable?"
As with any tax question the answer is, it depends.  That money is usually taxable, however.

A more specific question is, "if I get compensation for physical injury or illness that someone else has inflicted upon me, is the money taxable."
The answer is still, it depends, but settlements like these are usually not taxable.

Here is the general rule.
  1. The settlement has to be for a tort or tort-like action. "Tort" is one of those legal-babble terms that means you got damaged by someone else. You don't have to go to court for this requirement to be met.
  2. The settlement has to be because of a physical injury or illness. Making you bleed is what we call a "good fact." Internal bleeding counts. So do bruises.
Next, the exceptions: If the payment, or part of it, is for medical bills that have already been deducted on a tax return, that part is taxable income. Also, if the payment, or part of it, is labeled "punitive damages," that part is taxable. That's it. Those are the exceptions. Everything else is excluded from taxable income.

"So what's the big deal," you might ask. "It doesn't seem like rocket science."

You would think. However, there are a lot of people running around out there who believe there are other exceptions. Here are some myths in descending order of pervasiveness.
  • Myth #1: If you get physically injured by someone else and they compensate you for lost income, that part is taxable. Not so! It makes no difference how the dollar value of the physical injury is computed, the payment is still tax free.
  • Myth #2: If the compensation includes an amount for emotional distress or something similar, that part is taxable. This one is trickier because another part of the tax code says compensation for emotional distress is taxable. However, that other part refers to emotional distress when that's the only damage done to the person. If the emotional distress (including pain and suffering) is a result of the physical injury, the payment is still tax free.
  • Myth #3: Payments to anyone besides the injured party are taxable. Wrong again. If a person is banged up in an automobile accident and the spouse gets a payment for his/her suffering as a result of that accident, those payments are tax free. If a spouse is killed by someone else in an accident and the settlement results in the estate getting money, the estate does not have taxable income. If that settlement goes to the surviving spouse or other family member, the payment is still tax free.
If you meet the criteria under "general rule" and you're told by your tax return preparer that the lost wages part of your settlement is taxable, tell them to read IRC Section 104, Reg Section 1.104-1, and most importantly, Revenue Ruling 87-95. If they still don't understand, drop me a line. Our rates, in my opinion, are reasonable. (I have to say it's just my own opinion that our rates are reasonable because the AICPA has said that a general claim of charging "reasonable" rates is unethical.)

Do be sure to read the disclaimer at the top right of this page.

Thursday, March 15, 2012

Invitation to be scammed

Here is how the scam works.

Start your own <pick a job> business
  • You can earn $100/hour <or some other pie in the sky number per some time period>
  • You can work whenever and however you want <not if you want a successful business>
  • You can reduce your own tax liability <yeah, right>
  • You will be in demand for your skills <if you have marketable skills>
  • You can work from home <or not, depending on local zoning regulations>
  • You can work full-time or part-time  <depending upon whether or not you want a profitable business>

First things first. The only way you can start a new business and reduce your tax liability is to lose money on that business. If you are losing money, you aren't making $100 an hour.  Additionally, most of these "reduce your taxes" come-ons revolve around taking a home office deduction. However, one of the requirements for taking a home office deduction is making a profit. If you're making a profit, your tax liability goes up. If you're already losing money, your home office deduction is zero.

Most of these "opportunities" are nothing more than poorly disguised pyramid schemes. What you're really invited to do is either pay an upfront fee, or work for free, in order to acquire the right to sell the "opportunity" to the next sucker.

Here's my offer. If you want to pay someone to watch you read IRS Publication 17, Your Income Taxes, I'm available.  Plus, one hour free of my watching you read if you can figure out specifically what prompted this post (and tell me what it was, of course).

Check out those charitable organizations

The IRS has announced, in News Release 2012-34, the creation of an online search tool to get information about exempt organizations. Unfortunately, if all you have is the name, this might not be too useful. A search for "American Red Cross" yielded 21,146 hits and "American Cancer Society" yielded 34,931. Unfortunately, adding Atlanta, GA (the location of its headquarters) to the ACS search still provided 130 hits. The ACS was 4th on that shorter list but what if it had been 97th?

Maybe you better get its tax ID number from any charitable organization you have doubts about. A search with that number should yield one hit.

The search tool itself is accessible here.

Wednesday, March 14, 2012

It's education, stupid

Will Davis said it again. "The quality of [local] schools is the deal maker or breaker on many [economic development] projects." The managers of those companies thinking about investing in Chesterfield don't just ask about the schools, they point at a specific one and say, "I want a tour. Now." Not in a couple of months after some cosmetic fix-ups.

Virginia enjoys a reputation for quality education at all levels. So does Chesterfield County. However, that reputation is on the brink of being flushed down the toilet by a state legislature with too many members who cannot, or will not, think beyond the next election.

In Chesterfield, some of the new School Board members show signs of (1) seeing the connection between quality physical plant (an important component of quality education) and economic revitalization and (2) being willing to do something about it.

The final outcome remains to be seen but those who care about good jobs, a stable economy, and a reasonably high quality of life for everyone had better also begin voicing their support for restoration of school budgets and teaching positions.

Tuesday, March 13, 2012

Manchester Growing

44 new apartments are being built in Manchester, a section of Richmond south of the James, by Urban Development Associates. The BizSense article mentions several other projects under way in that area.

Successful revitalization in south Richmond is crucial to revitalization efforts in adjoining areas of Chesterfield County.

Monday, March 12, 2012

2011 AICPA National Accounting Competition

Students from N. C. State, my alma mater, have won the 2011 AICPA National Accounting Competition. The Journal of Accountancy story is here. "The members of the team, Wolfpack in the Black, are: Alan Perry (captain), Amanda Dew, Brian Jones, Seanna Robey and Eileen Taylor (faculty adviser)."

I was one of the first five students in the N C State accounting program to take the CPA exam. Leon Ennis, Cranstoun Reinoso, Bill Pinna and Mac McBurney, the instructors, laid the foundation for a great program. Full disclosure: We had to commute to Chapel Hill one semester to take auditing from Junius Terrell, with apologies to Joe Ben Hoyle, probably the best auditing teacher in the land. Four of us passed the auditing section (including one who didn't retain credit for it because it was the only section passed).

We first five received credit for 40% of the parts attempted on our first sitting - not bad when the "premier" program in the state was just over 50% and the national rate was below 20%. I also taught at State for 8 years.

Just to show you how good an auditing teacher Junius Terrell was, one of the students in that class, Phil Ameen, had the highest combined grade in North Carolina on the May 1972 CPA exam. If I remember correctly, he had the second highest combined grade in the country.Phil went on to do relatively well in the profession. His bio is here. It is a bit out of date; Phil is retired now although I wouldn't be surprised if he were even less retired than I am.

I'd like to say that Phil and I were bosum buddies but we weren't. He sat on the front row of the class and I was way in the back with the other interlopers from NCSU. I spoke with him at a professional meeting a few years ago. He claimed to remember me but he was probably just being polite.

Friday, March 9, 2012

Study refutes theory that workers returning to the job market will jack up the unemployment rate

Another article in today's Richmond Times-Dispatch has this headline. "Older workers are exiting fast, shrinking the labor force, study says."

The authors of the study, economists at Barclays Capital, said (emphasis added),"Based on our reading of the evidence, the conventional view that in recoveries the unemployment rate will stop falling and even start to rise because of surging labor force participation rates amounts to something of an urban legend. Such an event has not happened in the past, and we do not believe it will this time either."

In other words, the unemployment rate will probably not increase as the economy improves due to disheartened people returning to the work force to look for jobs.

While having people permanently exit the work force has, by itself, a positive impact on unemployment rates, the article notes that a smaller work force means, all else being equal, slower economic growth. The article didn't mention that many retirees still have significant disposable income.When a person leaves the work force, it does not mean he or she will suddenly stop spending any money at all.

The article also does not address the impact that increasing worker productivity has on economic growth. My guess is the negative impact on economic growth of a smaller work force will be so small as to be unnoticeable by most of us and by most economists.

$164 million for transportation projects

Yesterday (March 8) the Richmond region Metropolitan Planning Organization approved allocation of $164 million of federal funding for regional transportation programs over the next several years. Now all that has to happen is for Congress to appropriate those funds over the next several years. This morning's Richmond Times-Dispatch has an article, here, in the business section.

Not mentioned in the article was $200,000 to be expended in FY 2016 for a feasibility study for extending Tuckahoe Creek Parkway to Ridgefield Parkway. Although this was on the list of Goochland County projects, Henrico Supervisor Patricia O'Bannon said all the construction would be in Henrico, that 35 to 40 homes would have to be purchased to complete the project, that the connector is not in the Henrico comprehensive plan nor the Henrico thoroughfare plan, that she opposed it, and that it (the connector) was not feasible.