Virginia's Sales Tax Holiday

Below is an email from the Virginia Department of Taxation describing the upcoming Virginia sales tax holiday.

Save on qualifying items during Virginia’s 3-day sales tax holiday Aug. 7-9

Virginia shoppers get a break from local and state sales tax on qualifying back-to-school, emergency preparedness and energy efficient items during the state’s sales tax holiday, Friday, Aug. 7 through Sunday, Aug. 9, 2015.

New legislation enacted by the 2015 General Assembly combined Virginia’s three existing sales tax holidays into one, three-day holiday in August. Previously, the August sales tax holiday only applied to qualifying back-to-school items. For detailed information on the combined holiday, refer to the department's Combined Sales Tax Holiday Guidelines and Rules.

Overview of Exempt Items include:

·         Qualifying school supplies - $20 or less per item

·         Qualifying clothing and footwear - $100 or less per item  

·         Portable generators - $1,000 or less per item

·         Gas-powered chainsaws - $350 or less per item

·         Chainsaw accessories - $60 or less per item

·         Other specified hurricane and emergency preparedness items - $60 or less per item 

·         Energy Star labeled dishwashers, clothes washers, air conditioners, ceiling fans,  light bulbs, dehumidifiers, and refrigerators - $2,500 or less per item purchased for noncommercial home or personal use

·         WaterSense labeled bathroom sink faucets, faucet accessories such as aerators and shower heads, toilets, urinals, and landscape irrigation controllers - $2,500 or less per item purchased for noncommercial home or personal use

Notable additions to the list of qualifying items from previous years include certain computer supplies priced at $20 or less per item, such as computer storage media and printer paper, and all light bulbs affixed with the Energy Star label.

For additional information on the sales tax holiday, including detailed lists of qualifying items, visit the department’s Sales Tax Holiday web page.

Note that although used to be a back-to-school tax holiday qualified items now include many related to emergency preparedness and energy efficiency.

If you have questions about this or any other tax issue, please contact me at bill@hollandbrowncpa.com

Don't Ignore Your CPA's Advice!

Amit Chandel, a CPA in Orange County, California, made this post in the CPA Sole Practitioners and CPA Small Firms group on LinkedIn. In it, he provides an excellent example that supports  the imperative that is the subject of both his post and mine.

****
A California couple, Madhu and Tara Singhal, recently learned that lesson the hard way. In late October, the Tax Court upheld the IRS's imposition of an accuracy-related penalty under section 6662(a). The decision was a summary opinion by Judge Carolyn Chiechi.

Madhu Singhal an electrical engineer and also a member of the California bar, a fact noted by Chiechi,. In 2009 the Singhals formed a limited liability company (MMIT) as a vehicle to sell one of Singhal's inventions. In 2010 MMIT sold the invention for a long-term capital gain of $553,750.

Madhu Singhal engaged a CPA, Paul Gray, to prepare the 2010 Form 1065, "U.S. Return of Partnership Income," for MMIT. On September 15, 2011, Gray sent the completed return for MMIT, including Schedules K-1, to the Singhals. The Schedules K-1 showed their distributive shares, which included the long-term capital gain of $553,750. Gray also sent a separate letter to the Singhals advising that their distributive shares were the amounts to be reported on their 2010 individual tax return and that those shares may not correspond to their actual distributions. It was this latter advice that was the focus of the Tax Court opinion.

The Singhals filed their return on November 6, 2011. Singhal prepared the Form 1040; Gray did not. Their tax return did not reflect the long-term capital gain of $553,750 from MMIT. Instead, they reported a much lower amount.

The IRS issued a deficiency notice to the Singhals regarding their return. The Service determined that the long-term capital gain from MMIT was $553,750, the amount reported on MMIT's Form 1065. The deficiency notice determined an underpayment of $60,687 under section 6651(a)(1) and an accuracy-related penalty under section 6662(a) of 20 percent of the underpayment, or $12,137.

Before trial, the Singhals conceded the underpayment determination by the IRS but contested the accuracy-related penalty. There are two alternative prongs to the section 6662(a) penalty. Under section 6662(b)(1), the penalty is applicable if attributable to the taxpayer's negligence. Under section 6662(b)(2), the penalty is applicable if it amounts to a substantial understatement. As an objective metric, the substantial underpayment prong obviously provides an easier path for the IRS.

A taxpayer can defend against the accuracy-related penalty under section 6662(a) if he can demonstrate reasonable cause and that he acted in good faith under section 6662(c). The IRS carried its burden of proof of a substantial underpayment under section 6662(b)(2) simply by referencing the numbers reported on the Singhals' Form 1040. The taxpayers therefore had the burden of proving reasonable cause.

Their principal argument was that they believed the proper amount to be reported was the amount of distributions received from MMIT. It was that belief, the taxpayers argued, that demonstrated they acted in good faith when underreporting the long-term capital gain.

Chiechi quickly rejected the reasonable cause argument. She noted that the reasonable cause defense is a facts and circumstances determination, which includes an analysis of the taxpayers' "efforts to assess (their) proper tax liability" and their "reliance on the advice of a professional, such as an accountant."

In making her determination, Chiechi focused on the CPA's letter, which specifically advised the taxpayers that the proper amount reportable on their Form 1040 may not correspond to the amount of the distributions from MMIT. At some point during the trial, Chiechi took over the trial's proceedings to ask Singhal a critical question. What, she asked, was his understanding of the letter? Singhal's response must have made his fellow attorneys wince. He said he never read the letter. That answer was clearly the clincher for Chiechi. She said a reasonable person would not have ignored his CPA's advice in preparing the Form 1040. "A reasonable person would have read" the letter, she wrote.
****

Mr. Chandel's original post is here (LinkedIn membership required). The Tax Court ruling is here (PDF format).

All the code section numbers aside, the taxpayers erroneously did not include almost $554,000 capital gain on their own tax return. Besides additional tax $61,000, the taxpayers owed an accuracy related penalty (of called the negligence penalty) of more than $12,000. One fact that often helps some taxpayers to avoid this penalty is to assert they were following the advice of a tax professional. Unfortunately for the taxpayers in this case, their CPA advised them to do the exact opposite of what they actually did.

As the subject line urges, DON'T IGNORE YOUR CPA'S ADVICE!

Geek the Library

The Henrico County Library system has been participating in the Geek the Library national library awareness campaign.

Like Don Farmer said, "CPAs aren't boring people, they're just excited by boring stuff."

Myths Regarding the Flat Tax

A flat tax on income would tax all individual income at the same rate. At a 15% rate, a person making $10,000 would pay $1,500 in taxes and a person making $100,000 would pay $15,000. Current proposals would eliminate income taxes on capital gains and dividends (so it isn't really the same tax rate on ALL income).

It is more fair than the current system - only if you agree that tax burden should be shifted from the wealthiest 10% or so of taxpayers to everyone else. Of the taxpayers who paid tax in 2012, those with AGI under $50,000 (90,812,022 returns) had 1.8% of total net taxable gains while those with AGI of a $1,000,000 or more (392,850 returns) had 73.5% of those gains. The flat tax would have eliminated taxes on almost $455 billion of capital gains realized by the very wealthy (about $1,158 per tax return and on $11.4 billion of capital gains on the under $50,000 taxpayers (about 12 cents per return). The division of taxable dividends is not quite as extreme: About 7.8% were received by taxpayers with AGI between $1 and $50,000 while 52.0% were received by taxpayers with AGI of a $1,000,000 or more.

Here are some other comparisons. 28.9% of the educator expense deductions were taken on tax returns with AGI of under $50,000 while almost none were taken by those with AGI of $1,000,000 or more. 58.2% of the total student loan interest deductions were taken by taxpayers with AGI under $50,000 while those over $1,000,000 deducted nothing (due to the AGI related phase out).

It is simpler than the current system - because it eliminates tax breaks such as home mortgage interest and real estate tax deductions, charitable contribution deduction, education credits and deductions, dependent care and child credits, and more. I've seen no suggestion that businesses would lose all their deductions and credits therefore that part of the tax code, with all its complexities, would remain.

The overwhelming majority of the complexity affecting individual tax returns provide tax savings; because of phase outs based on AGI, much of that savings is enjoyed by taxpayers with AGI under $100,000 or so.

Anyone who thinks a flat tax would remain simple needs a reality check. Just look at what Congress has done with the current income tax law during the last 2 or 3 decades. A flat tax might not even begin very simple because of the lobbying efforts of those negatively affected by elimination of home mortgage interest and real estate tax deductions, charitable contribution deduction, education credits and deductions, dependent care and child credits, and more.

The IRS would be eliminated - not true. It might be renamed but a tax collection agency would continue to exist. Those parts of the IRS needed to enforce business related parts of the Internal Revenue Code would remain unchanged.

It would reduce fraud - Ha! Crooks are crooks. Crooks will still cheat on their taxes. Most of the dollar cost of income tax fraud today comes from failing to report taxable income. Phony deductions and credits pale in comparison.

A flat tax would stimulate the economy here like it did in Eastern Europe - Some former members of the Soviet Union, primarily Baltic countries, did adopt a flat tax and did enjoy initial economic growth. Whether that growth was a result of a flat tax regime or because of suddenly having a free more capitalistic economy is open to debate. In any event, those countries’ economies are now no better, perhaps worse, than other countries.

In short, the benefits claimed for a flat tax are unlikely to occur, certainly for no significant length of time. The costs include the significant economic dislocation (job migration and price fluctuations are two examples) that would accompany any significant change in a tax regime. All the costs of having a flat income tax easily outweigh the mostly non-existent benefits.

Income tax information came from the IRS at http://www.irs.gov/uac/SOI-Tax-Stats-Individual-Income-Tax-Return-Form-1040-Statistics.

Costs and Benefits - the IRS Budget

I know I'm frustrated with long wait times when calling the IRS on behalf of a client. I'm confident that my colleagues in the tax preparation industry are as well. John Koskinen, Commissioner of the Internal Revenue Service has a suggestion for us and anyone else who has waited on hold for 2 or 3 or more hours to get a question answered or an issue resolved. Accounting Today says that advice is "to call their member of Congress."

As noted by the Commish, a 1% decline in tax compliance costs $30 billion in revenue. The IRS budget is $11 billion. Congress continually piles on the IRS work load (not just the ACA but every new complexity to the tax law) while cutting the IRS budget. Koskinen was also quoted in the Washington Post stating that every additional $1 budgeted for tax enforcement yields $4 of additional revenue.

Poorer service and decreased tax revenues causes the phrase "penny wise and pound foolish" to come to mind.

I agree with Commissioner Koskinen's advice. If you don't like incredibly long telephone wait times or if you don't like tax cheats getting away with their lawlessness, then call or write your Representative in Congress.

Tax Implications of Bitcoins

Back on March 25 the IRS issued IR-2014-36 entitled “IRS Virtual Currency Guidance : Virtual Currency Is Treated as Property for U.S. Federal Tax Purposes; General Rules for Property Transactions Apply.”  
The title pretty much says it all. Virtual currency, of which Bitcoins are a well-known example, is treated like regular currency although not legal tender in the U.S.
“General tax principles that apply to property transactions apply to transactions using virtual currency.  Among other things, this means that:

• Wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer on a Form W-2, and are subject to federal income tax withholding and payroll taxes.
• Payments using virtual currency made to independent contractors and other service providers are taxable and self-employment tax rules generally apply.  Normally, payers must issue Form 1099.
• The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer.
• A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property.”

Payments described in the first two bullet items are reported at the fair market value of the virtual currency on the date of the payment. Reporting requirements mentioned in the last bullet item also use fair market value on the transaction date to determine whether the need for a report is triggered.
If you invest in a virtual currency, like Bitcoins, when you sell that investment you will have a capital gain or loss.
The full text of Notice 2014-36 is available as a PDF file here.
If you have questions about this or any other tax issue, give me a call (804-745-7157) or send me an email (bill@hollandbrowncpa.com).

Travel & Entertainment: Maximizing Tax Benefits

Tax law allows you to deduct two types of travel expenses related to your business, local and what the IRS calls "away from home."

1. First, local travel expenses. You can deduct local transportation expenses incurred for business purposes such as the cost of getting from one location to another via public transportation, rental car, or your own automobile. Meals and incidentals are not deductible as travel expenses, but you can deduct meals as an entertainment expense as long as certain conditions are met (see below).
2. Second, you can deduct away from home travel expenses-including meals and incidentals, but if your employer reimburses your travel expenses your deductions are limited.

Local Transportation Costs

The cost of local business transportation includes rail fare and bus fare, as well as costs associated with use and maintenance of an automobile used for business purposes. If your main place of business is your personal residence, then business trips from your home office and back are considered deductible transportation and not non-deductible commuting.

You generally cannot deduct lodging and meals unless you stay away from home overnight. Meals may be partially deductible as an entertainment expense.

Away From-Home Travel Expenses

You can deduct one-half of the cost of meals (50 percent) and all of the expenses of lodging incurred while traveling away from home. The IRS also allows you to deduct 100 percent of your transportation expenses--as long as business is the primary reason for your trip.

Here's a list of some deductible away-from-home travel expenses:

• Meals (limited to 50 percent) and lodging while traveling or once you get to your away-from-home business destination.
• The cost of having your clothes cleaned and pressed away from home.
• Costs for telephone, fax or modem usage.
• Costs for secretarial services away-from-home.
• The costs of transportation between job sites or to and from hotels and terminals.
• Airfare, bus fare, rail fare, and charges related to shipping baggage or taking it with you.
• The cost of bringing or sending samples or displays, and of renting sample display rooms.
• The costs of keeping and operating a car, including garaging costs.
• The cost of keeping and operating an airplane, including hangar costs.
• Transportation costs between "temporary" job sites and hotels and restaurants.
• Incidentals, including computer rentals, stenographers' fees.
• Tips related to the above.

Entertainment Expenses

There are limits and restrictions on deducting meal and entertainment expenses. Most are deductible at 50 percent, but there are a few exceptions. Meals and entertainment must be "ordinary and necessary" and not "lavish or extravagant" and directly related to or associated with your business. They must also be substantiated (see below).

Your home is considered a place conducive to business. As such, entertaining at home may be deductible providing there was business intent and business was discussed. The amount of time that business was discussed does not matter.

Reasonable costs for food and refreshments for year-end parties for employees, as well as sales seminars and presentations held at your home are 100 percent deductible.

If you rent a skybox or other private luxury box for more than one event, say for the season, at the same sports arena, you generally cannot deduct more than the price of a non-luxury box seat ticket. Count each game or other performance as one event. Deduction for those seats is then subject to the 50 percent entertainment expense limit.

If expenses for food and beverages are separately stated, you can deduct these expenses in addition to the amounts allowable for the skybox, subject to the requirements and limits that apply. The amounts separately stated for food and beverages must be reasonable.

Deductions are disallowed for depreciation and upkeep of "entertainment facilities" such as yachts, hunting lodges, fishing camps, swimming pools, and tennis courts. Costs of entertainment provided at such facilities are deductible, subject to entertainment expense limitations.

Dues paid to country clubs or to social or golf and athletic clubs however, are not deductible. Dues that you pay to professional and civic organizations are deductible as long as your membership has a business purpose. Such organizations include business leagues, trade associations, chambers of commerce, boards of trade, and real estate boards.

Tip: To avoid problems qualifying for a deduction for dues paid to professional or civic organizations, document the business reasons for the membership, the contacts you make and any income generated from the membership.

Entertainment costs, taxes, tips, cover charges, room rentals, maids and waiters are all subject to the 50 percent limit on entertainment deductions.

How Do You Prove Expenses Are Directly Related?

Expenses are directly related if you can show:

• There was more than a general expectation of gaining some business benefit other than goodwill.
• You conducted business during the entertainment.
• Active conduct of business was your main purpose.

Record-keeping and Substantiation Requirements

Tax law requires you to keep records that will prove the business purpose and amounts of your business travel, entertainment, and local transportation costs. For example, each expense for lodging away from home that is $75 or more must be supported by receipts. The receipt must show the amount, date, place, and type of the expense.

The most frequent reason that the IRS disallows travel and entertainment expenses is failure to show the place and business purpose of an item. Therefore, pay special attention to these aspects of your record-keeping.

Keeping a diary or log book--and recording your business-related activities at or close to the time the expense is incurred--is one of the best ways to document your business expenses.

If you need help documenting business travel and entertainment expenses, don't hesitate to call us. We'll help you set up a system that works for you--and satisfies IRS record-keeping requirements.

******

For more useful tax information, please read our monthly newsletter.

Email: bill@hollandbrowncpa.com

Web page: http://www.hollandbrowncpa.com

What does it take?

Henrico County government dropped the ball again keeping their libraries open until 9:00 PM long after any sensible person was safely at home. Chesterfield County libraries closed at 7:00 PM which, frankly, was a couple of hours later than should have been.

What I find frustrating is that no news outlet in the Richmond area has seen fit to do even a back page story on this issue. I guess it will take someone's spouse, parent or child getting killed before anyone pays attention and maybe not then unless it's an otherwise slow news day.

Snow Days

Every time it snows decisions have to be made such as whether to close offices or cancel meetings. My preference is to err on the side of safety. That is why I postponed yesterday's Chesterfield County Planning Commission meeting from yesterday afternoon and night to tomorrow. On the other hand, Henrico County's preference seems to be not to worry all that much about safety of its employees. I thought that attitude might change when a new county manager took over but that has not proved to be the case.

Here are two examples. Yesterday in Chesterfield County government offices, including libraries, closed at 5:00 PM. Salaried employees sent home in the middle of their shifts were paid through the end of their shifts. In Henrico County, libraries closed at 7:00 PM reflecting a decision that wasn't announced until 6:15 PM. It remains to be seen whether salaried employees will have to use vacation time if they want to be paid for those two hours off.

This morning Chesterfield County government offices opened at 10:30 AM. Salaried employees who made it in by that time will be paid for a full day's work. In Henrico, employees were allowed to report at 10:00 AM but if they did and wanted to be paid for missed hours, they had to use personal leave time.

Sure, serving the public is important but I'm not talking about emergency services provided by fire fighters, police officers and EMTs. I'm talking about mundane, easy to put off stuff like going to the library. Given last night's weather, there weren't even a handful of patrons taking advantage of the fact that Henrico's libraries were open two hours later than Chesterfield's.

So, Henrico County, I know you're going to say you do care about your employees along with a bunch of irrelevant blah blah blah about serving the public ad nauseam. But, putting employees at risk to provide services that aren't going to be used accomplishes nothing except to cause people to conclude you really don't care much about your employees' welfare.

You Don't Know What You've Got Until It's Gone

Most of my regrets relate to things I failed to say or do. I have another such regret to add to that list.

Yesterday, I attended the funeral of my friend, the Reverend Doctor James F. McClellan, Jr. I wish I had made the time for him that would have allowed me to say "my close, personal friend."

I had probably heard him or someone else say, before yesterday, what a great baseball fan he was. In September, my sons and I were in Kansas City, MO and one of the things we did was visit the Negro Leagues Baseball Museum in that city. I wish I had sat down with Jim to talk about that visit. I'll bet he would have had some tidbits of information that would have added to my understanding of what it was like for those players. I wouldn't be surprised to learn that he had knowledge or memorabilia or insights that would have made a great addition to that museum's collection. Based on what I heard yesterday, he would have enjoyed such a conversation as much as I would have. I wish ...

Jim McClellan was a great contributor to our society. All of us should try to be like him. He will be missed.

In Home Day-Care

There was a time, not too long ago, when applications for a conditional use permit to operate a family day-care home breezed through the Chesterfield Planning Commission with little controversy and no opposition. If any neighbors showed up at a community meeting or the public hearing, it was to express support for the applicant.

This article on CBS 6's web pages, Daycare dilemma; owner fights to keep doors open,  about an application for a family home day-care in Brandermill is an example of the controversy and opposition that some of  these cases are now generating.

There is a lot that could be said about this issue but this post is about one specific sentence in the linked article. The sentence reads, "The county is looking to the BCA for guidance." That is not precisely accurate because the implication is that the contents of restrictive covenants on residences in Brandermill will determine the recommendation of the Chesterfield Planning Commission. Some members of the Commission do hold the opinion that we should consider restrictive covenants when making recommendations to the Board of Supervisors. I do not agree with that view. 

In my opinion, it is not the role of the Planning Commission to consider contractual relationships in making its decisions. Restrictive covenants are contracts among home owners. If disputes arise among the parties to a contract, those disputes are properly resolved by the parties themselves or, as a last resort, by the courts. Neither the Chesterfield Planning Commission nor the Chesterfield Planning Department has the expertise or the resources to make judgments on contracts. Due process, rules of evidence, and a host of other legal requirements are likely to be violated if a bunch of amateurs (even intelligent, highly motivated amateurs) start trying to act as judge and jury in legal disputes between adversarial parties. Our job is to determine whether such things as applications for rezoning and conditional use (among others related to land use) are in the best interest of Chesterfield County and its citizens.

Therefore, when this, or any other case, comes up for a vote by the Planning Commission, I will not consider opinions or assertions on what contracts require the applicant or other interested parties to do or not do. I'll make my decisions on the merits of each case related to land use in Chesterfield County and on the health, safety and welfare of the residents of the county.

Predatory Lenders in Chesterfield County

Here is a copy of an email distributed by the Virginia Interfaith Center for Public Policy.

***
Speak Up and Help Keep Predatory Lenders in check in Chesterfield County!

Many of you have seen the story about the hearing on Chesterfield’s proposed zoning ordinance up for public hearing this week. On Wednesday our county leaders will be considering whether to impose some of the most strict local ordinance measures on predatory lenders or leave them take advantage of the most vulnerable, bring down property values, and encourage crime in the process. Please help put in place strict measures on predatory lenders at this critical local level!

All eyes are on Chesterfield as other localities wish to put in place similar restrictions, but want to know that the public is behind them. Show your support for these restrictions  by coming out at 6:30pm on Wednesday January 9th to tell the Board of Supervisors that these restrictions are not only necessary, but that you expect them to put them in place because this is everything in their power to restrict predatory businesses that push families into bankruptcy and foreclosure, leaving neighborhoods less safe and without substantial business investment.

What: Public Hearing on the Proposed Regulation to Alternative Financial Institutions

When: Wednesday January 9th at 6:30PM. This policy is the only item on the public hearing agenda, so we need as many folks as possible to speak! I will be there with fact sheets at 6PM and will be happy to answer additional questions as you prepare to speak.

Where: Public Meeting Room, 10001 Iron Bridge Road, Chesterfield, VA 23832
If you can’t come out, please consider emailing or calling your board of supervisor member before the public hearing. Click here  to see who your supervisor is; and then click here  to find their contact information. Ask your Supervisor to vote YES on the proposal related to Alternative Financial Institutions.
***
As are all my posts to my blog, I alone am responsible for the content of this one. It should clear to the most casual reader that I speak for myself in these posts, not for anyone else, not for any organization or entity whether I'm a member of that organization or not.

Individual Tax Provisions of the American Taxpayer Relief Act of 2012

Here are some of the tax provisions of the ATR which affect individuals.

Permanent Provisions

Alternative Minimum Tax fix - The higher exclusion amount that has been effect for several years was restored for tax year 2012 and made permanent. Starting in 2013, the exclusion amount will increase as the Consumer Price Index (CPI) increases.

Bush era tax brackets (limited) - For married couples with income* of $450,000 or less, the maximum tax bracket continues to be 35%. For married couples making more in 2013, the top bracket is now 39.6%. After 2013, the threshold amount is indexed to changes in the CPI. (For heads of household, single taxpayers and married taxpayers filing separate tax returns, the threshold amounts are $425,000, $400,000 and $225,000 respectively.)

Phase out of personal exemptions and itemized deductions eliminated - For married couples with income of $300,000 or less, reduction in personal exemptions and itemized deductions is permanently eliminated. Again, the threshold amount is indexed to changes in the CPI. (For heads of household, single taxpayers and married taxpayers filing separate tax returns, the threshold amounts are $275000, $250,000 and $150,000 respectively.)

Estate Tax modified - The maximum estate tax rate is set at 40%. The exclusion amount for an estate is $5,000,000 in 2012 and indexed to the CPI beginning in 2013.

15% maximum tax rate on long term capital gains and qualified dividends (limited) - The maximum tax rate for these income items goes to 20% for taxpayers to the extent they have income in the 39.6% bracket.

"Marriage Penalty" Relief - The provisions providing relief for married couples with similar amounts of income, including standard deductions and tax brackets are made permanent. Note that about one third of married couples enjoyed a "marriage bonus" even without these provisions and another third had no significant penalty or bonus.

Expanded Coverdell Education Savings Accounts - Maximum annual contribution of $2,000 made permanent. Use of distributions to pay K-12 costs made permanent.

Employer-provided Educational Assistance - This provision, which allows employers to reimburse  up to $5,250 per year of an employee's qualified education costs with the employer getting a tax deduction and the employee having no increase in taxable income, is made permanent.

2001 Modifications of Child Tax Credit - The $1,000 credit amount is made permanent. Expansion of refundability is made permanent.

Extenders

2003 Modifications of Child Tax Credit - Even greater expansion of refundability of this credit is extended five years through December 31, 2017.

American Opportunity Tax Credit - This education credit is extended five years to December 31, 2017.

Deduction of qualified tuition expenses - The above-the-line deduction for tuition is extended to December 31, 2013. This benefit phases out for higher income levels. It provides a deduction whether the taxpayer itemizes or not.

Deduction for certain expenses of elementary and secondary school teachers - The provision allowing classroom teachers to deduct above-the-line up to $250 of out of pocket costs for classroom supplies is extended to December 31, 2013. ("Above-the-line" means teachers get the deduction whether they itemize or not.)

Mortgage debt forgiveness - The provision allowing up to $2,000,000 of mortgage debt forgiveness to be excluded from taxation is extended to December 31, 2013.

Mortgage insurance deduction - The deductibility of mortgage insurance premiums as if they were mortgage interest is extended to December 31, 2013.

Option to deduct state/local sales taxes instead of income taxes - Of benefit mainly to taxpayers living in state with no individual income tax, the provisions has been extended to December 31, 2013.

Tax-free distributions from individual retirement plans for charitable purposes - This provision is of benefit to taxpayers who would otherwise not itemize their deductions and to taxpayers would otherwise be subject to phase-out of other tax benefits due to higher adjusted gross income. It has been extended to December 31, 2013.
____________

There are other less commonly useful individual provisions and a many business tax provisions in the bill.

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. [http://www.childrensdefense.org/child-research-data-publications/data/protect-children-not-guns-report-2009.html]

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.

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.

"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 17^th, 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.”

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.

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'.

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.

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.