Volume XXXV Number 5 December 2010

Society Launches Online Learning Portal

10 Foreclosure & Short Sale Myths International Tax Compliance Issues EAs on Capitol Hill

May/June 2012 | California Enrolled Agent

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California

Enrolled Agent

TABLE of CONTENTS

May/June 2012 • VOLUME XXXV • NUMBER 6

The Society

President’s Message......................................3-4

President’s Message

If You Were the Judge........................................ 4 EVP Perspectives................................................5

Legislative Governor Releases 2012-13 State Budget Revision.................................................6

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Features

his is my final President’s Letter. I must say with all sincerity that it has been a privilege to be the CSEA President, representing the finest tax professionals in the country. In my role as President I have had the opportunity to meet many dignitaries, including Office of Professional Responsibility (OPR) Director Karen Hawkins and Return Preparer Office (RPO) Director David Williams. I have also had the honor to meet many of you, our Members. I was present at many of the NAEA meetings during which changing the organization’s name was discussed. What was most impressive about these discussions was not whether we voted to change our name but that the United States Treasury had come to NAEA with the offer to consider a name change. Even though there are other organizations that have Enrolled Agent Members, NAEA was the only organization that the United States Treasury approached with this historic offer. My Enrolled Agent license is one of my most valuable assets. We each worked hard to acquire our EA license and we each continue to work hard to maintain it. We are professionals who must adhere to professional standards and CSEA must match these high standards. The educational opportunities that CSEA offers should exceed those of other organizations, and CSEA’s website and advertising should represent the best in technological innovation. Our staff should be the most talented and highly trained in the field.

IRS Compliance Initiative Aimed to Better the Profession ....................................................7 Set Your Sights on Tax Boat . ....................... 8-9 Ten More Myths about the Tax Consequences of Foreclosures and Short Sales..........................................10-12 digiTAX..........................................................13-15 International Tax Compliance Issues.............................................................16-18 CSEA-IRS Federal Representation Workshops 2012.............................................. 19 NAEA Installs 2012-2013 Leaders........20-21 EAs on Capitol Hill.......................................... 22 It’s Time to Focus on Your Tax Practice ............................................ 23

2012 Annual Meeting Far Northern California Chapter Welcomes Members . ...................................................24-25

Members Member Benefits: Much More Than Just Discounts . ..................................................26-27 Tax Help Day a Dual Success ........................28 Welcome New Members.............................. 29 In Memoriam.................................................... 29 2012 CSEA Events Calendar........................ 30 Member Classifieds........................................30 Business Partners Directory........................ 31

continued on p. 4

California Enrolled Agent (ISSN 1086-5012) is published bi-monthly for $9.00 per year (included in membership dues) by the California Society of Enrolled Agents, Inc. Offices are located at 3200 Ramos Circle, Sacramento, California 95827-2513. Periodical Postage Rates Paid at Sacramento, CA. POSTMASTER: Send address changes to California Enrolled Agent, 3200 Ramos Circle, Sacramento, CA 95827-2513. Your comments and suggestions are invited. We reserve the right to edit letters for length and clarity. Contents ©2012 all rights reserved. Reproduction rights granted with credit, on condition that tear sheets of usage are sent to the above address with the exception of those items listing specific copyright information. We SpEAk Tax, Super Seminar, C-STAR and The Tax Boat are registered service marks of the California Society of Enrolled Agents. Unauthorized use forbidden. Contributions to the EA Promotion or Major Media Marketing funds (as may be referenced herein) are not deductible as charitable contributions but may be deductible as business expenses. Contributions to the CSEA Legislative Action or Political Action funds are not deductible. Contributions to the CSEA Education Foundation are deductible as charitable contributions. California Enrolled Agent is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting or other professional advice. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. (Adapted from a Declaration of Principles jointly adopted by a committee of the ABA and a Committee of Publishers and Associations.) While every effort has been made to ensure the accuracy of information presented herein, the California Society of Enrolled Agents and its staff do not guarantee the accuracy or completeness of any information and is not responsible for any errors, omissions, or misrepresentations. Statements of fact and opinion as made are the responsibility of the authors alone and do not imply an opinion on the part of the Officers or Members of the California Society of Enrolled Agents. CSEA is an Affiliate of the National Association of Enrolled Agents.

3200 Ramos Circle, Sacramento, CA 95827-2513 Telephone: 916/366-6646, Fax: 916/366-6674 Toll Free: 800/777-2732 Email: [email protected], Website: www.csea.org Subscription rate: $75.00 per year Editor/Publisher Managing Editor Magazine Layout

Scarlett D. Vanyi, CAE Jana Perinchief Kate Cook Design

May/June 2012 | California Enrolled Agent

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The Society continued from p. 3

We must bear in mind that maintaining these high professional standards comes at a cost; a cost that requires an investment by each of us. This investment is of our time, talents, energy and money. There are other organizations that many of us believe in and support financially, usually by writing a check every year; when we do this we are “passive supporters” or “checkbook members.” In this, my last President’s Letter, I want to encourage each of you to become more than a “checkbook Member” of CSEA. As much as this organization needs and values your financial support, I am personally encouraging each of you to further enrich CSEA by becoming active at CSEA as well as at your local Chapter. Making your voice heard and adding your support will ensure that CSEA continues to embody the high standards we have come to expect.

You deserve the best that CSEA can offer. Make an investment of your time and resources to ensure that CSEA, as an organization, equals you, the professional. Thank you again for allowing me the honor and privilege of representing all of you as the CSEA President for the 20112012 year.

Jean C. Nelsen, EA, CSEA President

If You were the Judge An Enrolled Agent from Citrus Heights, CA failed to timely file Federal individual income tax returns for tax years 2002-2004 and also failed to file Federal individual tax returns for tax years 2005-2009. Per the Office of Professional Responsibility, Circular 230 provides Regulations Governing Practice before the Internal Revenue Service. Section 10.51 (6) describes incompetence and disreputable conduct as “willfully failing to make a Federal tax return in violation of Federal tax laws, or willfully evading, attempting to evade, or participating in any way in evading or attempting to evade any assessment or payment of any Federal tax.” The regulations prescribe the duties and restrictions relating to such practice and prescribe the disciplinary sanctions for violating the regulations. Which one of the following consequences do you believe was imposed on the non-compliant Enrolled Agent? A. B. C. D.

Suspended by default decision in an expedited proceeding and 48 months in prison. Ordered to pay all back taxes including penalties and interest, and complete 800 hours of community service providing presentations to Enrolled Agents, CPAs, Attorneys and Registered Tax Return Preparers about their responsibility to timely file their tax returns. Censured in practice before the IRS. Ordered to pay all back taxes including penalties and interest. Disbarred by consent indefinitely from December 7, 2010 for violation of § 10.51.

See page 18 for answer

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May/June 2012 | California Enrolled Agent

The Society

EVP Perspectives

Society Launches Online Learning Portal By Scarlett D. Vanyi, CAE

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he world is a-changin’ as they say … and this statement could not be more accurate than when it comes to describing the evolution that has occurred in the tax industry over the past few years. With the IRS’s launch of its new Return Preparer Office (RPO) in 2010, a myriad of changes aimed at increased regulation of the tax preparer community emanated from on high including the requirement for all preparers to have identifying PTINs and for all preparers to be credentialed in one form or another, resulting in the creation of a new minimum competency testing regime and category of tax professional, the Registered Tax Return Preparer (RTRP). Changes didn’t end there, though. Wisely, the Service also recognized the need for all preparers to have ongoing continuing education (CE) to keep current on changes lawmakers and regulators dish out that impact tax preparation. Members will be glad to know that CSEA is a-changin’ too. As we strive to help Enrolled Agents and other tax practitioners keep pace with RPO’s new requirements, CSEA also strives to meet the diverse needs of tax professionals across the state, the nation and the globe. Of the reported 715,046 preparers holding valid 2012 PTINs, 384,488 are regulated by the IRS as either Enrolled Agents, RTRPs or RTRP candidates. While Enrolled Agents have always been required to complete CE to renew their licenses, RPO has created a much greater need for tax education by requiring RTRPs and RTRP candidates to obtain 15 hours of CE annually beginning January 1, 2012. The profound impact that these staggering numbers will have on both the tax preparer and education provider community should not be underestimated. In the vein of more effectively administering CE provider oversight and increasing the quality of CE, RPO also rolled out a myriad of changes and requirements impacting CE providers, including CSEA. I am pleased to report that CSEA has been at the forefront in implementing RPO’s changes and has worked diligently to represent the interests of its Chapters as they deliver critically needed CE programs throughout California. Through CSEA’s efforts, RPO is allowing CSEA to administer all education offered by not only the state Society but also by its Chapters. CSEA is pleased to be able to serve its Chapters in this way, saving them both time and money. In addition, CSEA has been approved as a CE provider for both Enrolled Agents and RTRP/RTRP candidates. This represents

an amazing opportunity for the Society to expand its reach to those who currently prepare taxes, many of whom are undoubtedly future Enrolled Agents. The Society is gearing up for this opportunity by expanding the reach of its premier educational offering, Super Seminar. CSEA is pleased to announce the launch of its Online Learning Portal in July 2012. This year we captured the quality education sessions delivered at Super Seminar in order to offer this education in an online environment. The portal will feature the same fantastic content presented at Super Seminar in an on-demand webinar format. Most webinars include the audio presentation synchronized with the projected slides along with downloadable PDF format syllabi as well as MP3 audio options. Perhaps one of the best things about the Online Learning Portal is that, for the first time, CSEA will be able to offer tax professionals the ability to learn whenever and wherever they want to get their CE. In addition to enabling CSEA to serve a larger tax practitioner community around the globe, the Online Learning Portal will serve tax professionals who already attend Super Seminar. Attendees no longer have to agonize about which session to choose when they are interested in two sessions offered at the same time, now that they can take sessions online. And those who can’t attend Supers in person due to scheduling conflicts, health challenges, travel costs, or family obligations will now be able to experience Supers in a new and personalized way. We are very excited about this new offering and hope you will be too. Watch your email for the unveiling of CSEA’s Online Learning Portal in July 2012.

Scarlett D. Vanyi, CAE is the Executive Vice President of California Society of Enrolled Agents. She holds a Bachelor’s of Science Degree in Organizational Behavior & Leadership from the University of San Francisco and recently received designation as a Certified Association Executive (CAE) from the American Society of Association Executives. Ms. Vanyi has more than 17 years of experience in the nonprofit association and legislative advocacy arenas and has expertise across a wide array of nonprofit management disciplines.

May/June 2012 | California Enrolled Agent

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Legislative

Governor Releases 2012-13 State Budget Revision By Chris Micheli

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n May 14, Governor Jerry Brown released his May Budget Revision, which reflects his updated budget proposal designed to take into account updated revenue figures after the April tax receipts. The Governor, in a surprise announcement, estimated the state’s shortfall to have grown substantially to $15.7 billion, up from the $9 billion anticipated in the Governor’s January budget proposal. The Governor blamed that increase on three factors: his prior revenue estimates were too high; mandated spending to education under Proposition 98 increased; and, courts have blocked some $1.7 billion in cuts included in the FY 2011-12 enacted budget from last June. These forces have pushed the Governor to propose additional cuts, which he called “more difficult” than initially anticipated, but also necessary to restore the state to fiscal balance by reducing overall spending to a sustainable level. Overall, the May Revise proposal seeks an additional $8.3 billion in cuts and $5.9 billion in revenues. $5.6 billion of the revenues are attributed to passage of the Governor’s temporary tax increases that will likely appear before voters on the November ballot.

Included in the May Revise proposal are: - A 5 percent across-the-board reduction in State worker pay (achieved through either reduced workweek or pay reduction, but must be done through collective bargaining negotiations); - Trigger cuts totaling $6.1 billion should the Governor’s proposed temporary tax increases fail to reach the ballot or be rejected by voters. - The 2011 Realignment is funded by a portion of the Sales and Use Tax (SUT) rate as well as by a portion of the Vehicle License Fee (VLF). The May Revision forecasts that the 1.0625 percent of the SUT rate that is dedicated to the 2011 Local Revenue Fund will contribute $5.2 billion in 2011-12 and $5.4 billion in 2012-13. The 2011 Realignment portion of the VLF is estimated at $462 million for 2011-12 and $496 million for 2012-13. The sales tax estimates are increased by $46 million in 2011-12 and $115 million in 2012-12 above the Governor’s Budget levels. In a YouTube video announcing the new size of the deficit, Governor Brown also stated that state spending “is now at its lowest level in decades.” Brown proposed to enact these cuts regardless of the result of a November initiatives to raise tax revenue. These budget items will be considered by the

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May/June 2012 | California Enrolled Agent

state Legislative committees in the next several weeks, in advance of a June 15 deadline to pass a budget. Of interest to tax practitioners were two new policy proposals from the Governor “that will affect General Fund revenue”: • Allow the FTB to issue a wage garnishment against a delinquent income tax debtor without recording a tax lien • Conform to federal tax law to allow a penalty for fraudulent claims for refund Specifically, the May Revision presents the two proposals with the following information: Change rules regarding Franchise Tax Board (FTB) wage garnishment – The May Revisions proposes to allow the FTB to issue a wage garnishment against a delinquent income tax debt without requiring FTB to record a tax lien. This provides a benefit to individuals with outstanding tax debts because it removes an incentive for FTB to record the lien. This change is expected to generate $11 million General Fund revenue in 2011-12 and $27 million General Fund revenue in 2012-13. Penalty for fraudulent claim for refund – Consistent with current federal law, the May Revision Budget would create a penalty for filing a fraudulent claim for refund. This penalty is intended to deter taxpayers from filing amended returns that claim credits that are not substantiated. This program is expected to generate $1 million General Fund revenue in 2011-12 and $3 million General Fund revenue in 2012-13. These provisions will be considered by the respective Senate and Assembly Budget Subcommittees in late May and early June. The state constitution requires adoption of the budget by June 15, in time for the start of the fiscal year on July 1. Historically, the claim for refund penalty has been strongly opposed by the business community and many tax practitioners, and it was the cause of the veto of two prior federal tax conformity bills by then-Governor Arnold Schwarzenegger. The wage garnishment proposal has not been previously considered.

Chris Micheli is a Principal with Aprea & Micheli, Inc., a Sacramento-based governmental relations firm. He can be reached at 916/448-3075 or cmicheli@ apreamicheli.com.

Features

IRS Compliance Initiative Aimed to Better the Profession By Franklin Ruedel, EA

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reparer compliance visits by the IRS occurred in 2011 and 2012 in the middle of tax season. And yes, they will undoubtedly happen again in the future, at your busiest time, possibly when your most important client has an appointment. And, no, they won’t make any allowances for your time schedule or needs. Although the Letter 4809 mailed in November 2011 certainly has very terse wording and flatly states the preparer penalties that can be imposed under IRS Section 6694(a) and 6694(b), these compliance visits are not meant to be a threat. They should be viewed as an open discussion with someone who is interested in helping to better the profession not only for the IRS’ benefit but for the profession itself and for the taxpaying public as well. Compliance visits are not a new procedure for the IRS. The agency has been visiting tax preparers since 2006, when visits mainly concerned electronic filings to ensure that the Forms 8879 included proper signatures, and to monitor e-file procedures. The visits typically lasted about two to three hours. In December 2010 the IRS sent 10,000 letters informing the tax preparer community that it was planning compliance office interviews in an effort to improve the accuracy and quality of filed tax returns. As a result of the 10,000 mailers, IRS representatives visited 2,500 tax preparers during the 2011 tax season. November 2011’s Letter 4809 stated that the visits were to begin in November, and they continued through the 2012 tax season. The IRS sent their best auditors and revenue officers, some with 15 years’ experience, to interview you and review your office standards, and depending on which addendum letter you received with Letter 4809, your procedures on Schedule A, C or E. They also verified your credentials, including your EA card and PTIN. One EA who received a compliance visit from the IRS in 2011 had a 35 percent electronic filing reject rate because of a stiff learning curve with new software that was being used for the first time. He was able to overcome any penalty the visit may have produced by being up-front and answering the questions in a forthright manner. He is a solo preparer with some 400 returns, and runs his office in a professional manner using best practices.

Another EA who was visited in 2011 has a two preparer office with four supporting office staff, and by using best practices he has the procedures in place to properly protect client confidentiality and to know where each return is in the preparation process for a 1,400 return-preparation office. So, whether you have a large or small office, you may attract the IRS’ interest in the future if you have an anomaly happen in your office, like a 35 percent reject rate on electronically filed returns or an overabundance of one type of returns. However, the best way to invite a compliance office visit is to have returns that somehow “have a high percentage of attributes associated with returns typically containing inaccuracies and misinterpretations of the law” (verbatim from 2011’s Letter 4809) and fall into the criteria used by the IRS’ database to generate Letter 4809 and associated letters regarding returns with Schedule A, C or E. Remember that receiving a Letter 4809 does not mean you will actually receive a preparer compliance appointment. Only approximately 10 percent will actually be visited. In addition, a visit does not automatically result in a penalty. Clear procedures and best practices will help to avoid that. Furthermore, Joe Calderaro, EA has verified that there are no disclosure issues involved with these visits, nor is the IRS on a “fishing expedition” to find audits of your clients. The IRS will come when scheduled and will let you know why they are coming. Franklin Ruedel became an EA in 1975. He has a degree in Accounting and Economics from CSULA with a minor in Speech. He has been on the CSEA Board of Directors for seven years, has served on the Bylaws, Education, Membership, and Awards Committees, and is now a Member of the Legislative Affairs, Ethics & Professional Conduct and Scholarship Committees. His practice specializes in estate, fiduciary, individual, trust, and estate/ trust accounting, as well as serving those with audit, collection and tax exempt needs. He lives with his wife in San Gabriel, California.

May/June 2012 | California Enrolled Agent

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Features

Set Your Sights on Tax Boat – Cruise to Alaska in 2013 Tax Boat is a perfect way to combine high-quality, livelecture continuing education and a great family vacation. CSEA is committed to developing and presenting the finest continuing education programs for tax professionals that can be found. These programs are designed for the specific purpose of allowing the busy professional to obtain the continuing education credits required to maintain licensure, while at the same time enjoying a family holiday without spending too much time away from his or her practice. Participants will receive an educational experience and an opportunity to relax, renew and reconnect, an experience available exclusively with CSEA. We simply incorporate everything you love about learning and place it on an extraordinary floating “campus.” Tax Boat is sailing on August 30, 2013 on Celebrity Cruise Line’s Millennium from Vancouver, British Columbia northbound to Seward (Anchorage), Alaska! This is a 7-night cruise with optional post-cruise land tours. Imagine sitting at a conference table and being able to look out on the glacial waters of Alaska for inspiration. Cruising builds in the social and excursion time needed to get a clear head, generate fresh thinking and share new experiences with colleagues. 8

May/June 2012 | California Enrolled Agent

Celebrity Cruises was voted the number one Large-Ship Cruise Line in the Condé Nast Traveler 2011 Readers’ Choice Awards. In 2012 the Millennium was “Solsticized” with favorite Solstice Class® features such as celebrity iLoungeSM, an icetopped Martini Bar, Café al Bacio & Gelateria, a Cellar Masters Wine Bar, and the uniquely unordinary Qsine® specialty restaurant. With several rates and itineraries to choose from this year, we’re sure you’ll find one that’s perfect for you. CSEA is utilizing independent cruise and vacation specialist, Cindy Carrigan-Tsalatsanis of Cruise One to assist attendees with the cruise portion of their trip. Cindy has many years of experience in the travel industry, including both leisure and corporate travel. Coupled with CSEA’s unique education offerings, this is an adventure no tax professional should miss! Tax Boat 2013 education sessions were chosen for their popularity and broad appeal to tax professionals. Super Seminar speakers Vicki Mulak, EA, CFP® and Frank R. Acuña, Attorney at Law will provide education sessions designed to answer tough questions and help the practitioner improve his or her knowledge in order to stand out in a crowd. continued on p. 9

Features continued from p. 8

A Business Entities Intensive Course, taught by Vicki Mulak, EA, CFP® is an eight hour session providing an in-depth look at business entities from a strategic planning point of view. Each entity type, i.e., C Corporation, S Corporation and LLC, possesses an intrinsic value for the skillful practitioner seeking to maximize client planning opportunities while avoiding pitfalls. A practical analysis utilizing contrast and comparison of the critical issues affecting LLC, S corporation and their participants will be included. A thorough understanding of basis in flow-through entities is especially essential, yet LLCs and S corporation basis calculations are different! How “at-risk” and passive limitations affect each entity type will be explored. In summary, a comprehensive understanding and competency in business entity management should be achieved through review of the treatment of losses, distributions, compensation of principals, Social Security and Medicare planning and much, much more! CE Offered: IRS: 8 Hours (Federal Tax Law Topics) * CTEC: 8 Hours (Federal Tax Law Topics) * CSEA/NAEA: 8 Hours *Note: IRS Program Number and CTEC Number will be posted on www.csea.org when available.

The Wide, Wide World of Trusts, taught by Frank R. Acuña, Attorney at Law, is designed to help the practitioner answer the diverse questions surrounding a trust. You have been asked to be the tax professional for a trust, but what kind of trust is it? How does it work? How do you report for income tax purposes? What steps must be taken to preserve estate tax savings? Often called the “Death and Taxes” class, it examines the full range of trusts being written today, explaining the important features of each and their best application. The class will look at how trusts are administered and how subtrusts are divided and funded after a first spouse’s death, as well as examining issues surrounding aging clients, exploding the myths and explaining the realities of elder care and how proper trust planning can help. CE Offered: IRS: 8 Hours (Federal Tax Law Topics) * CTEC: 7 Hours (Federal Tax Law Topics) and 1 California Hour * CSEA/NAEA: 8 Hours *Note: IRS Program Number and CTEC Number will be posted on www.csea.org when available.

Early Bird Rate Received by January 2, 2013

CSEA Member* NAEA Member

Non-Member

Both Education Sessions Registration (16 hours)

$599

$699

$799

One Education Session Only Registration (8 hours)

$319

$369

$419

Standard Rate Received after January 2, 2013

CSEA Member* NAEA Member

Non-Member

Both Education Sessions Registration (16 hours)

$699

$799

$899

One Education Session Only Registration (8 hours)

$389

$439

$489

*Includes Associate Members & Affiliate Members

For Tax Boat education session schedule and registration information, visit csea.org/Events & Education/Tax Boat 2013. For more information and to register for the cruise, visit www.taxboat.net, or contact Cindy Carrigan, Independent Cruise & Vacation Specialist at 631-360-8108 or 855-TAX-BOAT (829-2628) or by email at [email protected].

May/June 2012 | California Enrolled Agent

9

Features

Ten More Myths About the Tax Consequences of Foreclosures and Short Sales By David M. Fogel, EA, CPA

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n the January 2009 and August 2009 issues of the California Enrolled Agent, I discussed the income tax consequences of foreclosures and short sales involving a principal residence and rental property, respectively, and in the November 2010 issue, I debunked ten of the “myths” about the tax consequences that have been spread by other tax practitioners. In the May/June 2011 issue, I discussed the reduction of “tax attributes” that’s required when a taxpayer excludes cancellation of debt income (COD income) using the bankruptcy or insolvency exclusions. There’s still a great deal of confusion about how the law applies to these transactions. In this article, I hope to clear up ten more “myths.” Background One of the first questions to be answered in determining the income tax consequences of a foreclosure or short sale is to determine if the debt is nonrecourse or recourse. A debt is nonrecourse if the lender can’t hold the borrower personally liable for it and may go only against the value of the property to collect. A debt is recourse if the lender can hold the borrower personally liable for it beyond the value of the property. The importance of this distinction is that where title to the property is transferred, such as in a foreclosure or short sale, if the debt is nonrecourse, then there is no COD income. Instead, the principal amount of the debt is treated as the “amount realized” in computing gain or loss.1 But if the debt is recourse, then the transaction is split into two parts: (1) COD income equal to the principal amount of the debt minus the fair market value (FMV) of the property, and (2) gain or loss equal to the FMV of the property minus its adjusted basis.2 Myth #1 – The amount of COD income in a foreclosure and short sale are the same. Many tax practitioners have written to me about the amount of COD income reported on a Form 1099-C. They want to dispute the amount of COD income shown on this form because it’s more than the principal amount of the debt minus the FMV of the property. Is this a valid dispute? Probably not. In a short sale, the lender applies the net proceeds of the sale against the balance of the debt and cancels the remainder. In such a case, the principal amount of debt canceled is the amount of COD income. This is higher than in a foreclosure, and the difference is the selling expenses of the short

sale (realtor commissions, title insurance, escrow fee, recording fees, etc.) that are deducted from the gross sales price. In the only Tax Court case I’m aware of that involved a short sale, the Tax Court concluded that the amount of COD income was the amount reported on Form 1099-C.3 Myth #2 – Where there’s a first and second mortgage, and the lender holding the first mortgage forecloses, the second mortgage isn’t canceled. It depends. Assume that the taxpayer purchased a principal residence and financed the purchase with an 80 percent first mortgage loan and a 20 percent second mortgage loan. Suppose further that both loans were nonrecourse because the taxpayer obtained the loans to purchase the property.4 When the lender holding the first mortgage loan forecloses, is the second mortgage canceled? Yes, because in the case of a nonrecourse loan, the lender’s only recourse is to the property. If the lender holding the first mortgage forecloses and acquires the property, there’s nothing for the holder of the second mortgage loan to collect from, so it’s deemed canceled. Assume the same facts, except that both loans are recourse. In that case, at least in California, it depends upon who holds the loans. In California, if the same lender holds both the first and second mortgage loans and forecloses using the non-judicial foreclosure procedure by exercising its rights under the deed of trust for the first mortgage loan (notice of default, period of redemption, trustee’s sale), the second mortgage loan is deemed canceled.5 If a different lender holds the second mortgage loan, then that lender may pursue the borrower for payment. Myth #3 – Where two or more people are joint obligors on a debt that’s canceled, each must report their share of the COD income. Not necessarily. When a loan has several co-signers, then all co-signers are jointly and severally liable for the loan. If a part of the loan is subsequently canceled, then it’s likely that the lender will issue a Form 1099-C to each of the co-signers showing the full amount of the debt that was canceled. If there are three co-signers, then each will probably receive a Form 1099-C showing the full amount (not one-third) of such income. continued on p. 11

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| California Enrolled Agent

Features continued from p. 10

In Chief Counsel Advice, the IRS advised that in the case of such co-signers, based on the facts and circumstances, a determination should be made as to which of the co-signers should report the income or how such income should be allocated among them.6 For example, suppose that Mom and Dad co-signed a recourse loan for their daughter so that she could purchase a principal residence, that the daughter made all of the payments on the loan, and that several years later the residence was lost to foreclosure. If the daughter occupied the residence and Mom and Dad lived elsewhere, and if Mom and Dad are allocated two-thirds of the COD income, then Mom and Dad won’t be able to exclude the COD income using the principal residence exclusion of IRC §108(a)(1)(E). It would probably be better to allocate all of the COD income to the daughter in order to maximize usage of the exclusion. Myth #4 – Since you must reduce the basis of business property by the amount of the Qualified Real Property Business Indebtedness (QRPBI) exclusion, there’s no benefit in claiming the exclusion. Wrong. If there’s COD income resulting from a foreclosure or short sale of real property used in a business (such as real property rented to tenants), and if such COD income is excludable using the QRPBI exclusion of IRC §108(a)(1)(D), in computing gain or loss on the transaction, you must reduce the basis of the property by the amount of the exclusion.7 In most cases, this has the effect of reducing the loss or increasing the gain by the same amount as the exclusion, resulting in a “wash.” Some argue that if there’s a gain, then it’s better to claim the QRPBI exclusion and increase the gain because it will be treated as a capital gain under IRC §1231 (the tax rates on capital gains are lower than on ordinary income). Sorry, but Congress closed that loophole. The gain will be taxed as ordinary income to the extent of the QRPBI exclusion.8 If there’s a loss, then claiming the QRPBI exclusion will reduce the amount of the loss. This could have an effect if the taxpayer has a section 1231 gain in the next five years. Under IRC §1231(c), section 1231 gains in a particular tax year must be recaptured as ordinary income to the extent of any “unrecaptured” section 1231 losses deducted in the preceding five years. By claiming the QRPBI exclusion and minimizing the loss, you could reduce the impact of this recapture rule in a future year. If you didn’t claim the QRPBI exclusion, then you wouldn’t be able to fix this problem in the future year because the QRPBI exclusion must be claimed on a timely-filed return.9 And lastly, the QRPBI exclusion can make a difference in the case of a personal residence that has been converted to rental use where the FMV of the property at the time of conversion is lower than original cost. See the following illustration of a short sale:

COD Income Principal balance of loan

$530,000

Sales price

$325,000

Less: Selling expenses of short sale

(20,000)

Net proceeds of short sale

$305,000

Amount of Debt Canceled = COD Income

(305,000) $225,000

IRC §108(c)(2)(A) Limitation on QRPBI Exclusion Principal balance of loan

$530,000

Fair market value of property

(325,000)

IRC §108(c)(2)(A) limitation on QRPBI exclusion

$205,000

Calculation of Loss Sales price

$325,000

Less: Selling expenses of short sale

(20,000)

Amount Realized

$305,000

(a) Original cost of property

$550,000

(b) FMV at time of conversion to rental use

325,000

Lower of (a) or (b) (Treas. Reg. §1.165-9(b)(2))

$325,000

Less: Depreciation

(15,000)

Less: QRPBI exclusion (IRC §1017(b)(3)(F)(iii))

(205,000)

Adjusted Basis

(105,000)

Loss on Short Sale

$200,000

Since this is a gain, there is no loss. Calculation of Gain Sales price

$325,000

Less: Selling expenses of short sale

(20,000)

Amount Realized

$305,000

Original cost of property (Treas. Reg. §1.1011-1)

$550,000

Less: Depreciation

(15,000)

Less: QRPBI exclusion (IRC §1017(b)(3)(F)(iii))

(205,000)

Adjusted Basis

(330,000)

Gain on Short Sale

$(25,000)

Since this is a loss, there is no gain. Without claiming the QRPBI exclusion, there would be $225,000 of taxable COD income and a $5,000 loss on the short sale. By claiming the QRPBI exclusion, there’s only $20,000 of taxable COD income and no gain or loss on the short sale. Myth #5 – COD income resulting from the foreclosure or short sale of property held for investment may not be treated as investment income that increases the limitation for deducting investment interest expense. Wrong. Such COD income is treated as investment income.10 continued on p. 12 May/June 2012 | California Enrolled Agent

11

Features continued from p. 11

Myth #6 – When calculating insolvency, the balance in a qualified retirement plan isn’t counted as an asset because it’s exempt from the claims of creditors. Wrong. The Tax Court has held that in determining a taxpayer’s extent of insolvency for purposes of claiming the insolvency exclusion, assets that may be exempt from claims of creditors are included in the calculation.11 Furthermore, if the taxpayer is receiving benefits from a pension or annuity (including social security), the present value of those monthly benefits over the taxpayer’s remaining lifetime is counted as an asset in the insolvency calculation.12 Myth #7 – When calculating insolvency, all liabilities that the taxpayer potentially could be liable for are counted. Not always. You can include contingent liabilities or liabilities that the taxpayer has guaranteed only if it is more likely than not that the taxpayer will be called upon to pay them.13 There’s a special rule for nonrecourse debt. Where nonrecourse debt exceeds the FMV of the property, include it as a liability in the insolvency calculation, but only to the extent of the FMV of the property.14 The reason for this is that the taxpayer won’t be called upon to pay the excess. Do not include as liabilities past-due mortgage interest or real estate taxes to the extent that these amounts would be deductible if they had been paid. IRC §108(e)(2) provides that COD income does not include the cancellation of any liability to the extent that payment of the liability would give rise to a deduction. The Tax Court has held that the same rule applies in determining a taxpayer’s extent of insolvency.15 Myth #8 – When calculating the extent of insolvency on a joint return where only one spouse received COD income, you can either combine the assets and liabilities of the spouses or have separate calculations for each spouse. Wrong. Each spouse is required to determine his or her own extent of insolvency separately, even if the spouses file a joint return.16 Myth #9 – When the taxpayer excludes COD income relating to the foreclosure or short sale of business property by using the insolvency exclusion, in computing gain or loss, reduce the adjusted basis of the property by the insolvency exclusion. Wrong. I have heard that the IRS has taken this position in several audits. There is no authority for this position. If a taxpayer qualifies for the insolvency exclusion, then the amount excluded must be used to reduce the taxpayer’s “tax attributes,”such as net operating loss carryovers, general business credit carryovers, minimum tax credit carryovers, capital loss carryovers, the basis of property, passive loss carryovers and foreign tax credit carryovers, in this order.17 Except for the basis of property, these reductions are made after the taxpayer’s tax liability for the year 12 May/June 2012

| California Enrolled Agent

of the discharge has been determined.18 The basis of property is reduced on the first day of the following tax year.19 The taxpayer may elect to apply the reduction to the basis of depreciable property first, instead of in the order listed above,20 but the reduction still occurs on the first day of the following tax year.21 Myth #10 – If the basis of the taxpayer’s principal residence is one of the “tax attributes” that’s reduced by the bankruptcy or insolvency exclusion, the subsequent gain on the disposition of that residence may be excluded under the home sale exclusion of IRC §121. Wrong. The reduction of basis by the bankruptcy or insolvency exclusion is treated as a deduction allowed for depreciation.22 In determining how much of the gain on the disposition of a taxpayer’s principal residence is excludable under the home sale exclusion, the portion of the gain allocable to depreciation isn’t excludable.23 Conclusion I hope that this article has cleared up some more of the “myths” and rumors about the income tax consequences of foreclosures and short sales. As indicated in the discussion above, analyzing the transactions and determining the income tax consequences can be quite complicated. Understanding how to apply these rules is crucial to arriving at the correct result. David M. Fogel, EA, CPA, is a self-employed tax consultant and frequent contributor to the California Enrolled Agent. He provides tax consulting services to other tax practitioners and represents clients before the various tax agencies. David has more than 37 years of experience in tax controversies, including 26 years working for the IRS (eight years as a Tax Auditor and Revenue Agent, 18 years as an Appeals Officer), and six years as a tax advisor for law firms in Sacramento. David is an Enrolled Agent, a CPA, and is also admitted to practice before the United States Tax Court. He can be reached by email at [email protected] or on the Internet at fogelcpa.com. Commissioner v. Tufts, 461 U.S. 300 (1983); Treas. Reg. §1.1001-2(a)(1); L&C Springs Associates et al. v. Commissioner, 188 F.3d 866 (7th Cir. 1999); Rev. Rul. 76-111, 1976-1 C.B. 214. 2 Frazier v. Commissioner, 111 T.C. 243 (1998); Treas. Reg. §1.1001-2(a)(2); Example (8) at Treas. Reg. §1.1001-2(c); Rev. Rul. 90-16, 1990-1 C.B. 12. 3 Stevens v. Commissioner, T.C. Summary Opinion 2008-61. 4 See section 580b of the California Code of Civil Procedure. 5 See Simon v. Superior Court, 4 Cal.App.4th 63 (1992). 6 See Chief Counsel Advice 200023001 (Feb. 4, 1999). 7 IRC §1017(b)(3)(F)(iii). 8 IRC §1017(d). 9 IRC §108(c)(3)(C) and Treas. Reg. §1.108-5(b). 10 See IRS Letter Ruling 200952018 (Sept. 17, 2009) 11 Carlson v. Commissioner, 116 T.C. 87 (2001). 12 Caton v. Commissioner, T.C. Memo. 1995-80; Johns v. Commissioner, T.C. Sum. Op. 2001-67; Gale v. Commissioner, T.C. Sum. Op. 2006-152. 13 Merkel v. Commissioner, 192 F.3d 844 (9th Cir. 1999). 14 See Revenue Ruling 92-53, 1992-2 C.B. 48. 15 See Lawinger v. Commissioner, 103 T.C. 428 (1994), footnote 4; Merkel v. Commissioner, 109 T.C. 463 (1997), footnote 17, affirmed on another issue 192 F.3d 844 (9th Cir. 1999). 16 See IRS Letter Ruling 8920019 (May 19, 1989). 17 IRC §108(b)(2). 18 IRC §108(b)(4)(A). 19 IRC §1017(a). 20 IRC §108(b)(5). 21 IRC §1017(a)(2). 22 IRC §1017(d)(1). 1

23

IRC §121(d)(6).

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Register now for the following digiTAX webinars: Wednesday, July 25 from 11:00 a.m. – 11:50 a.m., PDT Special Occupations: Tax Treatment for Real Estate Pros, Day Traders & Gamblers David Duval, EA, Vice President Tax Services, TaxResources, Inc. Session Description: When do rental activities rise to the level of a business? What is the difference between a real estate professional, a real estate investor, a real estate dealer and a house flipper? When is stock trading a business? What does it take to be a professional gambler? Tax status for business activities in the areas of real estate, stock trading and gambling often is determined based on a complex list of facts and circumstances. As the classification of taxpayers moves from investor or hobbyist to professional and business status, there are more favorable tax treatments available to the taxpayer. In this class we will review how that classification is determined, as well as the facts and circumstances that are considered in the process. We will also cover the requirements and tax benefits of being designated a professional in each occupation. Wednesday, August 1 from 11:00 a.m. – 11:50 a.m., PDT Employee Business Expenses Gary McKinsey, EA Session Description: Changing economy, tight company budgets: now your clients have employee business expenses. This session will cover what constitutes your client’s Tax Home and will cover what the requirements are for away from home travel and lodging expenses and when they are deductible. Learning Objectives: • For tax purposes, distinguish between residence and tax home

Learning Objectives: • Learn the requirements to be considered a qualified real estate professional and the associated tax benefits • Understand the rules and tax benefits for real estate dealers • Learn the correct tax treatment of expenses and income for house flippers • Learn the requirements and tax benefits of being a professional day trader • Learn the guidelines and requirements for being designated a professional gambler CE Offered: IRS Program #: WZA09-T-00103-12-O, 1 hour (Federal Tax Law Topics) CTEC #: 1001-CE-7092, 1 hour (Federal Tax Law Topics) Target Audience: All tax professionals Learning Level: Level 2 (intermediate; working knowledge of subject matter) Prerequisites: None Advanced Preparation: None

• Properly distinguish between deductible and nondeductible away from home business expenses • Review what expenses are classified as job search expenses and when they are deductible • Review of unreimbursed and reimbursed employee expenses CE Offered: IRS Program #: WZA09-T-00102-12-O, 1 hour (Federal Tax Law Topics) CTEC #: 1001-CE-7093, 1 hour (Federal Tax Law Topics) Target Audience: Enrolled Agents, Registered Tax Return Preparers Learning Level: Level 1 (basic; new to subject matter) Prerequisites: None Advance Preparation: None

continued on p. 14 May/June 2012 | California Enrolled Agent

13

Features continued from p. 13

Wednesday, September 12 from 11:00 a.m. – 11:50 a.m., PDT Valuations & Appraisals Monica Haven, EA, JD, LLM Session Description: This webinar will help with the difficult process of assigning values, whether for income or estate tax purposes, for separation agreements or business mergers, or insurance and depreciation calculations. Topics will include valuation methodologies, contribution rules and restrictions, qualified appraisals, art appraisals, and tax avoidance schemes. Learning Objectives: • To define “value” and establish its importance • To distinguish between capital gain and ordinary income property; each treated differently under the Code • To allow the practitioner to adhere to proper appraisal guidelines and avoid significant penalties for valuation misstatements

Wednesday, October 3 from 11:00 a.m. – 12:40 p.m., PDT Perilous Pubs, Precarious Positions and Punishing Penalties: How to Find Tax Answers You Can Rely On David Duval, EA, Vice President Tax Services, TaxResources, Inc. Session Description: When researching a tax position, in addition to finding an answer to your tax question, it is important that you know whether, and to what extent, you may rely on the information in any given source as a basis for your conclusion. As the IRS is increasing the legal accountability of tax professionals, evaluating the soundness of a tax answer is instrumental in knowing whether you may be subject to penalties for an incorrect position taken on a specific tax issue. Tax professionals also must take care when advising on a tax position by conducting an analysis of the various tax authorities to determine the likelihood that a position will be sustained on its merits. Understanding how to properly research the tax law that applies to a topic, issue or transaction is a key toward finding accurate answers and avoiding penalties. In this class we will review the substantial authority standard, learn to evaluate the weight of an authority, and begin to develop a sound research methodology that can be relied upon to answer both simple and complicated tax questions.

CE Offered: IRS Program #: WZA09-T-00101-12-O, 1 hour (Federal Tax Law Topics) CTEC #: 1001-CE-7094, 1 hour (Federal Tax Law Topics) Target Audience: Enrolled Agents, Public Accountants, Tax Attorneys, Financial Planners, Professional Fiduciaries, Certified Public Accountants, Tax Practitioners, Tax Interviewers, Estate Planners, Enrolled Retirement Plan Agents, Unenrolled Preparers, and staff for all listed. Learning Level: Level 2 (intermediate; working knowledge of subject matter) Prerequisites: None Advanced Preparation: None

Learning Objectives: • Understand the substantial authority standard and how to determine whether or not support for a tax position meets the standard • Know how the substantial authority standard relates to the imposition of penalties for understatement of tax due to an unreasonable position for an understatement related to an undisclosed position • Know the acceptable authorities and hierarchy of sources for determining whether there is substantial authority for the tax treatment of an item CE Offered: IRS Program #: WZA09-E-00100-12-O, 2 hours (Ethics) CTEC #: 1001-CE-7095, 2 hours (Ethics) Target Audience: All tax professionals Learning Level: Level 2 (intermediate; working knowledge of subject matter) Prerequisites: None Advanced Preparation: None

continued on p. 15 14 May/June 2012

| California Enrolled Agent

Features continued from p. 14

Wednesday, November 7 from 11:00 a.m. – 11:50 a.m., PDT Foreign Tax Issues for US Citizens Monica Haven, EA, JD, LLM Session Description: Whether here or overseas, US taxpayers face a myriad of issues and must contend with countless special forms. This course will help the practitioner assist his American clients as they live, travel and work abroad. Topics will include foreign earned income and foreign housing, the foreign tax credit, information for military personnel, inter-agency cooperation, and tax avoidance schemes. Learning Objectives: • To ensure that the practitioner can help US taxpayers living abroad claim maximum deductions and credits Wednesday, December 5 from 11:00 a.m. – 11:50 a.m., PDT Domestic Tax Issues for Non-Resident Aliens Monica Haven, EA, JD, LLM Session Description: This webinar offers an overview and provides the practitioner seeking to keep pace with a shrinking world economy with the tools necessary to serve a diverse clientele. Topics will include the determination of residency for federal tax purposes, dual-status issues, tax treatment of income and expenses for non-resident aliens, available elections and tax credits, administrative issues, and departure filing requirements.

Wednesday, January 9 from 11:00 a.m. – 11:50 a.m., PDT To Expense or Capitalize: Beginning in 2012, the IRS has Issued New Criteria Gary McKenzie, EA Session Description: The proper classification of repairs, maintenance, and other expenditures is an ongoing quandary for income tax preparers. The criteria are not always clear. This webinar will cover the new criteria and how to apply it in determining whether expenditure must be capitalized and under what circumstances expenditure may be currently deducted.

• To explain the complex inter-relationship between the Foreign Earned Income and Foreign Housing exclusions • To distinguish between the Foreign Housing Exclusion and Foreign Housing Deduction CE Offered: IRS Program #: WZA09-T-00099-12-O, 1 hour (Federal Tax Law Topics) CTEC #: 1001-CE-7096, 1 hour (Federal Tax Law Topics) Target Audience: Enrolled Agents, Public Accountants, Tax Attorneys, Certified Public Accountants, Tax Practitioners, Tax Interviewers, Unenrolled Preparers, and staff for all listed. Learning Level: Level 2 (intermediate; working knowledge of subject matter) Prerequisites: None Advanced Preparation: None

Learning Objectives: • To determine residency using the Green Card and Substantial Presence tests • To establish what income is considered “effectively connected” • To give the practitioner the necessary tools to file returns for non-resident aliens with US filing requirements CE Offered: IRS Program #: WZA09-T-00098-12-O, 1 hour (Federal Tax Law Topics) CTEC #: 1001-CE-7097, 1 hour (Federal Tax Law Topics) Target Audience: Enrolled Agents, Public Accountants, Tax Attorneys, Certified Public Accountants, Tax Practitioners, Tax Interviewers, Unenrolled Preparers, and staff for all listed. Learning Level: Level 2 (intermediate; working knowledge of subject matter) Prerequisites: None Advanced Preparation: None

Learning Objectives: • Gain an understanding of the criteria used to classify expenditures as either an expense or capital expenditure • Gain an understanding of the criteria to follow when classifying a series of expenditures that create a capital asset • Gain an understanding of the new de minimis rule in place beginning in 2012 and the safe harbor provision CE Offered: IRS Program #: WZA09-U-00097-12-O, 1 hour (Federal Tax Law Update) CTEC #: 1001-CE-7098, 1 hour (Federal Tax Law Update) Target Audience: Enrolled Agents, Public Accountants, Tax Attorneys, Certified Public Accountants, Tax Practitioners, Tax Interviewers, Unenrolled Preparers, and staff for all listed. Learning Level: Level 1 (basic; new to subject matter) Prerequisites: None Advanced Preparation: None

Can’t attend a live digiTAX Webinar? Listen to the archived version of your favorite digiTAX webinar following the conclusion of the live event for only $19 per webinar! Please note that because attendance can’t be verified, CE will NOT be offered for archived webinars at this time. For registration information, visit csea.org/Events & Education/digiTAX. May/June 2012 | California Enrolled Agent

15

Features

International Tax Compliance Issues Part One

By Steven L. Walker, Esq.

A

s the world becomes more interconnected with technology, and individuals travel between countries and carry on businesses overseas, international taxation becomes ever more important. This is particularly true in California with our mobile workforce. Practitioners should develop an understanding of the tax compliance rules to effectively assist clients in the ever changing planet that we live in – a place that looks a lot different from how it used to appear. I am writing this article to provide insight and to address some of the current issues faced by individuals with overseas connections, and hope that you find it useful. This article is Part One of a two-part article. The second portion will be published in the July/August 2012 issue of California Enrolled Agent. These topics were presented in detail at the International Taxpayers educational program offered at Super Seminar 2012. The program materials and additional information are available at the California Society of Enrolled Agents website, www.csea.org. 1. What if an individual has failed to report foreign bank accounts to the Internal Revenue Service? In response to growing concerns that individuals with foreign financial accounts were moving money offshore to avoid or evade U.S. tax compliance, the IRS has steadily increased enforcement with respect to foreign financial assets and offshore accounts. The IRS reopened the Offshore Voluntary Disclosure Program (OVDP) in January 2012, following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. The third offshore program comes as the IRS continues working on a wide range of international tax issues and follows ongoing efforts with the Justice Department to pursue criminal prosecution of international tax evasion. Most recently, under the Foreign Account Tax Compliance Act (FATCA), certain U.S. taxpayers with specified foreign financial assets must report those assets to the IRS on Form 8938 commencing for the 2011 taxable year. FATCA will also require foreign financial institutions to report directly to the IRS information about financial accounts held by U.S. taxpayers, making IRS detection of foreign assets easier. There is a growing spillover effect in Silicon Valley and elsewhere to the IRS’ stepped-up international enforcement. Many individuals who were born in a foreign country have 16 May/June 2012

| California Enrolled Agent

made California their home, as they have migrated to work for some of the world’s largest and most profitable technology companies. Often, tech employees are caught off guard when they learn of unfiled Foreign Bank and Financial Accounts (FBARs) and income not reported from foreign bank accounts. Most individuals want to be tax compliant, but does the law as it currently stands treat them fairly? Has Congress overstepped in its zeal to pursue international tax evasion and caught unsuspecting individuals in its ever widening enforcement net? Who Must File? The IRS has strict reporting requirements with respect to foreign bank accounts and steep penalties for failing to timely file the forms. A United States person that has a financial interest in or signature authority over foreign financial accounts must file a Form TD F 90-22 (Report of Foreign Bank and Financial Accounts) if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year.1 Clients may be unaware that the FBAR reporting rules apply not only to U.S. citizens but also to green card holders and individuals who meet the substantial presence test (i.e., at least 183 days in the United States). 2 Thus, most individuals living and working in the United States are subject to the rules. The breadth of the FBAR reporting requirements can catch clients off guard. So what is the best course of action for an individual who recently discovers that he or she has delinquent FBARs and/ or unreported income from a foreign financial account? Offshore Voluntary Disclosure Program The IRS wants individuals to come in the front door and participate in the Offshore Voluntary Disclosure Program (OVDP). The program has a mandatory 27.5 percent offshore penalty on the highest balance of the foreign financial accounts over the last eight years, and the penalty is not negotiable. The objective of the OVDP is to bring taxpayers that have used undisclosed foreign accounts and undisclosed foreign entities to avoid or evade tax into compliance with U.S. tax laws. While the OVDP program enables noncompliant taxpayers to resolve their tax liabilities and minimize their chance of criminal prosecution, most cases arguably are not criminal cases and do not involve the situation where an individual continued on p. 17

Features continued from p. 16

has used foreign accounts to avoid or evade tax. Commonly, an individual will have foreign financial accounts because he or she was born in a foreign country and/or has close family members living overseas. This is particularly true in California were a good portion of the population and workforce has connections to China, Hong Kong, and India. Opting Out and Removal from Program The mandatory 27.5 percent offshore penalty in the OVDP can actually serve as a disincentive for individuals who seek to be tax compliant and otherwise would participate in the OVDP. Examiners have no discretion to settle cases in the OVDP –it’s a take it or leave it program.3 The Service tells us that, alternatively, an individual may enter the OVDP but opt out and have the case examined by an IRS revenue agent.4 Since the OVDP targets the business person who has moved money offshore, this may be a better fit for certain individuals with foreign accounts. Opting out allows an individual to argue whether and to what extent certain penalties may apply, and the IRS has discretion whether to impose penalties, unlike in the OVDP. Unfortunately, we lack sufficient data at this time to predict with certainty how these cases will be handled by the IRS. The IRS has posted guidance on its website regarding the Opt Out procedures.5 One of the penalties that may apply to opting out is whether the individual is liable for a willfulness penalty or a non-willfulness penalty, if an individual opts out of the OVDP. There is a reasonable cause exception to the imposition of the non-willfulness penalty, and this subject matter will be discussed in greater detail in a subsequent article. The plot thickens, however, if an individual owns foreign mutual funds because the Passive Foreign Investment Company (PFIC) rules under IRC §§ 1291-1298 may apply, which require complex accounting and tax computations to compute the amount of tax due. The Service offers an alternative to the statutory PFIC computation that resolves PFIC issues without requiring reconstruction of historical data.6 The amount owed under the PFIC calculations outside of the OVDP can be significant, and therefore the presence of foreign mutual funds can actually force individuals back into the OVDP to obtain a better deal. An Enrolled Agent should run the numbers under both (a) the Offshore Voluntary Disclosure Program, and (b) the scenario where the individual enters into the program but opts out, so that the client can make an informed decision. At the end of the day, it may be a dollar driven result. Other Thoughts Yet another option in lieu of entering the OVDP is to file a “noisy disclosure” - the individual files delinquent FBARs and amended tax returns (both with cover letters explaining the situation) without participating in the OVDP. This can be a risky business.

If there is no serious tax noncompliance and zero to minimal tax due, a “noisy disclosure” may be an option. According to the IRS, if the taxpayer has reported and paid the tax with respect to the income from the foreign financial accounts, the taxpayer should file the delinquent FBARs with the Service and not enter the OVDP.7 A related issue is how far back in time to file the amended tax returns and delinquent FBARs. The answer often turns on the applicable limitation period. The act of filing amended tax returns and delinquent FBARS is referred to as a “quiet disclosure.” The IRS strongly discourages individuals from making quiet disclosures and instead wants individuals to participate in the IRS Offshore Voluntary Disclosure Program, which reopened in January 2012.8 In summary, there often are no easy answers for an individual with delinquent FBARS and unreported income from a foreign bank account. Be careful of providing legal advice and consider associating with a tax attorney, who has experience in dealing with this situation. 2. What if an individual declines to disclose foreign financial accounts? What if an individual, who is eligible to make a voluntary disclosure, declines to make full disclosure of the existence of, or any taxable income from, a foreign financial account during a taxable year? The IRS’ Frequently Asked Question No. 47 states that the practitioner may not prepare the client’s income tax return for that year without being in violation of Circular 230. A practitioner who faces this issue should take seriously Circular 230 and politely tell the client to find another preparer. 3. What if an individual failed to File Form 8938? The same individual who has an FBAR filing requirement likely also has a Form 8938 (Statement of Specified Assets) filing requirement. In general, certain U.S. taxpayers holding specified financial assets outside the United States are to report them to the IRS.9 The IRS recently added new Questions and Answers to the Form 8938 Basic Questions and Answers page of the IRS website that provides helpful information about what assets should be reported on Form 8938.10 If an individual failed to file a Form 8938, the individual should file an amended tax return and attach a properly completed Form 8938. There are compelling reasons to file the Form 8938: • Three year statute. The statute of limitations may remain open for all or part of the tax return until three years after the date on which the taxpayer files a Form 8938. 11 • Six year statute. If a taxpayer fails to include in gross income an amount relating to a specified foreign financial asset, and the amount omitted is greater than $5,000, any tax owed for the taxable year can be assessed at any time within six years after the return is filed.12 continued on p. 18 May/June 2012 | California Enrolled Agent

17

Features continued from p. 17

• Penalty. The IRS may impose a penalty of $10,000 for failing to file Form 8938, with an additional penalty of up to $50,000 for continued failure to file more than 90 days after notification.13 However, there is a reasonable cause exception –- no penalty shall be imposed by this section on any failure which is shown to be due to reasonable cause and not due to willful neglect. 14 In short, practitioners should make sure to file timely, complete and accurate Forms 8938 for their clients. Individuals with significant noncompliance issues may want to consult a tax attorney. 4. Closing In summary, often there is no easy answer when dealing with individuals who unexpectedly discover they have a tax compliance issue with respect to a foreign financial account or asset. Always be mindful of not providing legal advice, and consider working with a tax attorney to help solve the client’s problem. An attorney can not only provide additional expertise, but the client communications may be protected under the attorney-client privilege. Part Two of this article will be published in the July/August 2012 issue of the California Enrolled Agent.

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Steven L. Walker is a tax attorney in San Jose, California at the Law Office of Steven L. Walker, A Professional Law Corporation. His practice focuses on tax controversy and litigation, with an emphasis on international tax and wealth and conservation planning. Mr. Walker is a former IRS Trial Attorney at the Office of Chief Counsel, Internal Revenue Service, where he furnished legal advice and representation to the IRS on all matters relating to the administration and enforcement of the Internal Revenue laws, including audits, administrative appeals, collections and federal and state litigation.

1 2 3 4 5

6 7 8 9 10 11 12 13 14

31 C.F.R. Reg. § 1010.350. IRC § 7701(b)(1)(A); FBAR filing instructions. 2011 OVDI Frequently Asked Questions and Answers, No 50. 2011 OVDI Frequently Asked Questions and Answers, No 51. IRS Memorandum, Steven T. Miller, June 1, 2011, Guidance for Opt Out and Removal of Taxpayers from the Civil Structure of the 2009 Offshore Voluntary Disclosure Program (2009 OVDI) and the 2011 Offshore Voluntary Disclosure Program (2011 OVDI). 2011 OVDI Frequently Asked Questions and Answers, No. 10. 2011 OVDI Frequently Asked Questions and Answers, No. 17. 2011 OVDI Frequently Asked Questions and Answers, No. 16. IRC § 6038D. See Basic Questions and Answers on Form 8938, which can be found at www.IRS.gov. IRC § 6501(c)(8). IRC § 6501(e)(1)(A). IRC § 6038D(d). IRC § 6038D(g).

18 May/June 2012

| California Enrolled Agent

www.taxrepair.com

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If You were the Judge — Correct Answer answer – D Disbarred by consent indefinitely from December 7, 2010 for violation of § 10.51.

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CSEA-IRS Federal Representation Workshop 2012: The Basics of IRS Compliance Processes and Representation

SEMINAR DETAILS LOCATIONS*/DATES/TIME This all-day workshop has been expanded to four convenient locations… Registration: 8:00 AM – 8:30 AM Seminar: 8:30 AM – 4:30 PM  LOS ANGELES, CA:

August 14

 OAKLAND, CA:

August 21

 SACRAMENTO, CA:

August 22

 LAGUNA NIGUEL, CA:

September 6

Loyola Law School, Merrifield Hall, 919 Albany Street Ronald V. Dellums Federal Building, 1301 Clay Street, North Tower Auditorium Franchise Tax Board, Town Center, Gerald Goldberg Auditorium, 9646 Butterfield Way nd

IRS Office, Oceanside/Riverside Room, 2 floor, 24000 Avila Road

Representing clients before the IRS is one of the most challenging and important roles an Enrolled Agent performs. CSEA and the IRS are once again partnering to bring you a workshop that focuses specifically on how to best represent your clients through a better understanding of IRS compliance processes and procedures as they relate to examinations, collections, appeals, and offers in compromise. In addition, the IRS will share new developments at the Service, and CSEA will share the practitioner perspective.

WHO SHOULD ATTEND: All tax practitioners – this is your opportunity to learn the basics about IRS procedures regarding compliance processes and representation.

YOU CAN EXPECT TO LEARN: 

Examination Process & Procedures



Collection Process & Procedures



Appeals Process & Procedures

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Collection Appeals Program & Collection Due Process

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Offers in Compromise

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What’s New at the IRS

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COST $129/Members; $149/non-Members

CPE OFFERED IRS # WZA09-T-00146-12-I (8 hours federal tax law topics); CTEC # 1001-CE-7145 (8 hours federal tax law topics), California Board of Accountancy and CSEA/NAEA (8 hours); State Bar of California MCLE: 7 hours.

TO REGISTER REGISTER ONLINE TODAY: CSEA.ORG/EVENTS & EDUCATION!

May/June 2012 |

3200 Ramos Circle Sacramento, CA 95827-2513 800/777-2732 phone 916/366-6674 fax 19 California Enrolled Agentwww.csea.org

Features

NAEA Installs 2012-2013 Leaders The installation of NAEA’s Board of Directors on May 4, 2012 provided an opportunity for CSEA Members to meet with their peers from other states to celebrate the accomplishments of outgoing leaders and welcome incoming leaders to the helm of the national organization. The festivities began with a networking reception, followed by the annual banquet and awards ceremony. IRS Deputy Commissioner of Services and Enforcement Steve Miller was the evening’s keynote speaker. Mr. Miller is one of two deputies reporting directly to IRS Commissioner Doug Shulman with responsibility for IRS’ four operating divisions (Wage

& Investment; Small Business/Self Employed; Tax Exempt & Government Entities; and, Large Business and International) as well as the Criminal Investigation Division, the Return Preparer Office, and the Office of Professional Responsibility. Mr. Miller opened his remarks by thanking Enrolled Agents for all they do for the Service and by acknowledging that EAs have been highly regulated for a long time. He also stated that he wanted to reaffirm the IRS’ commitment to supporting Enrolled Agents, and praised EAs for providing the agency with a lot of insight that, while not always complimentary, was always welcome.

CSEA Political Action Committee Chair Jackie Thomson, EA, center, networks with CSEA Member Robert “Mickey” Reedy, EA prior to the banquet.

CSEA First Vice President Raven Deerwater, EA, PhD compares notes with CSEA Legislative Affairs Committee Chair Gary Anspach, EA.

IRS Deputy Commissioner of Services and Enforcement Steve Miller delivers the keynote address during the dinner.

NAEA Immediate Past President and CSEA Member Sherrill Trovato, EA thanks Mr. Miller for his support of Enrolled Agents.

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Features continued from p. 20

CSEA First Vice President Raven Deerwater, EA, PhD asked for clarification regarding several remarks Mr. Miller made about the Service’s plans for the future.

2011-2012 NAEA President and CSEA Member Sherrill Trovato, EA bestowed the NAEA President’s Award upon NAEA Education Chair and CSEA Member Cathy Clow, EA.

CSEA Member Robert “Mickey” Reedy, EA is installed as NAEA’s 2012-2013 Secretary/Treasurer by NAEA Past President Mary McGuire, EA.

Incoming NAEA President Frank Degen, EA receives the gavel from outgoing NAEA President Sherrill Trovato, EA, who joined the audience in donning sunglasses in preparation for Mr. Degen’s brilliant leadership.

CSEA Enrolled Affiliate Member Laurie Ziegler, EA was installed as a 2012-2013 NAEA Director.

Newly installed 2012-2013 NAEA Board Members pose for a photo.

May/June 2012 | California Enrolled Agent

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Features

EAs on Capitol Hill Nearly 90 Members participated in this year’s NAEA Fly-In day on May 2, during which Members met with many Congressional offices to deliver several key messages to federal policymakers. These meetings focused on educating Congressional staff about the Enrolled Agent profession and designation, advocating for tax code stability and eventual tax code reform, and also promoting protection of the EA credential within

the Internal Revenue Code. Congressional representatives were asked to co-sponsor the Taxpayer Bill of Rights Act of 2012 sponsored by Rep. Xavier Becerra (D-CA) in the House and Senator Jeff Bingaman (D-NM) in the Senate to clarify the rights and responsibilities of taxpayers. There was a debriefing reception following the meetings to allow Members to review the day while networking about issues of interest.

NAEA Senior Director of Government Relations Bob Kerr addressed the group of attendees, which included many CSEA representatives.

NAEA President Frank Degen, EA, left, shares some face time with CSEA Past President and NAEA Board Member Dave Shaw, EA, CSEA Member Joyce Cheng, EA and CSEA Executive Vice President Scarlett Vanyi, CAE.

NAEA Immediate Past President Sherrill Trovato, EA (California), second from left, compares notes with fellow attendees.

CSEA Members Jessie Jaswant, EA, left, and Lonnie Gary, EA, right, huddle with NAEA President Frank Degen, EA.

CSEA Members Dave Shaw, EA and Cathy Clow, EA traverse the halls of Capitol Hill to advocate on behalf of the profession.

CSEA Past President Dave Shaw, EA is warmly greeted by Jay Sulzmann, staff to Assembly Member Wally Herger.

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Features

It’s Time to Focus on Your Tax Practice

O

ne thing most tax professionals will agree on is the importance of correctly and intelligently evaluating their business practices. Now that the busiest period of the 2011 tax year has passed, practitioners have the opportunity to review and evaluate how they operate their businesses, and determine where there is room for improvement. After all, tax practice management must change to keep up with changing regulations and requirements. And whether you have been in practice for years or are just starting out, this workshop provides real world examples and practical tools. Barbara Willingham, EA and Penny van der Meer, EA will be presenting this intensive two-day workshop, and will teach you how to: • Write a business plan • Hire and train employees • Handle ethical dilemmas • Market your practice • Streamline office procedures • Utilize technology most effectively • Manage your time to your advantage You will receive excellent networking opportunities in a supportive learning environment, and be able to quickly and directly apply your newly learned skills to the best advantage in your workplace. Past attendees have lavished praise on this workshop: “I left the course with a firm vision plan and a mission statement that I continue to use and update. From employment laws to negotiating there is no way would I have had the insight this course provided if I had just done reading and learning the processes on my own.”

TPMW attendees receive in-depth education, while enjoying the comfort and convenience of the CSEA conference room.

“Highly recommended for new business owners.” “I am amazed at how much I learned. I have had a successful practice for many years, but this workshop has helped identify things I can and should change for continued success.” “Everyone – from the newest to the savviest – will gain knowledge and ‘best practices’ that they can use in their practice.” This two-day course is scheduled for August 16 and 17, 2012 at the CSEA office in Sacramento. The CSEA conference room is equipped with comfortable classroom chairs, overhead projector and screen, document camera, high-tech podium, ceiling speakers, white board and several other technology components, providing an excellent learning environment for attendees. For more information, visit csea. org/Events & Education/Tax Practice Management Workshop. Location: Dates: Cost: CE Offered:

CSEA Office, 3200 Ramos Circle, Sacramento, CA August 16, 8:00 a.m. – 8:00 p.m. (breakfast, lunch and networking dinner included) August 17, 8:00 a.m. – 5:00 p.m. (breakfast and lunch included) Before August 4 – $500/Members and $600/Non-Members After August 4 – $550/Members and $650/Non-Members TBD

Barbara Willingham, EA and Penny van der Meer, EA will present a two-day Tax Practice Management Workshop at the CSEA office.

May/June 2012 | California Enrolled Agent

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2012 Annual Meeting

Far Northern California Chapter Welcomes Members to the

2012 CSEA Annual Meeting Get ready to mix business with pleasure at the CSEA 36th Annual Meeting, followed by CSEA Board and Committee meetings, being held July 10-15 in Redding, CA. This is your opportunity to receive up to 11 hours of CE taught by subject matter experts, have fun with friends and family at indoor and outdoor sports activities, and help determine the direction of your Society by attending the General Session

and Town Hall meetings. Afterwards you will celebrate your Society while dancing the night away at the Annual Grand Banquet Celebration Dinner, Awards Presentation and Board Installation – all in the pristine natural setting of Redding. You really won’t want to miss this! Register now at csea.org/Events & Education/Annual Meeting.

Schedule of Events Tuesday, July 10 7:30 a.m. – 5:00 p.m.

Registration

8:00 a.m. – 9:40 a.m.

Education Session 1: Intermediate 1120S: Solving S Corp Problems, Part 1, Andy Rogers, EA Education Session 2: Reporting Requirements When Clients Invest Around the Globe, William Rogers, MBA, CFP, EA

10:00 a.m. – 11:40 a.m.

Education Session 3: Underwater Snorkeling – Advising on Distressed Properties, Cameron Hess, Esq., CPA Education Session 4: Military Tax Preparation: Serving Those Who Serve, Judy Gilmer, EA

1:20 p.m. – 3:00 p.m.

Education Session 5: Representation – Tips, Traps and Techniques, Gary Parodi, EA Education Session 6: Household Workers Payroll Tax Update, Andy Rogers, EA

3:20 p.m. – 5:00 p.m.

Education Session 7: Strategies for IRS Collections, Cameron Hess, Esq., CPA Education Session 8: The 990 Profit and Loss: How is This One Different than All Others? Eva Konigsberg, EA

5:30 p.m. – 6:30 p.m.

Welcome/Networking Reception

Wednesday, July 11 6:30 a.m. – 1:00 p.m.

Jim Reed Memorial Golf Tournament & Breakfast, Allen’s Golf Course *

7:30 a.m. – 1:00 p.m.

Registration

8:00 a.m. – 9:40 p.m.

Education Session 9: Intermediate 1120S: Solving S Corp Problems, Part 2, Andy Rogers, EA Education Session 10: What’s My Character - Correctly Reporting the Sale of Partnership Interest, Claudia Stanley, EA, CPA

10:00 a.m. – 10:50 a.m.

Education Session 11: The Case of the Missing Small Business Health Care Tax Credit, Mark Bole, EA Education Session 12: Protecting Client Data Protects Your Practice...AND Your Wallet: §7216 Rules, Jennifer MacMillan, EA

12:30 p.m. – 5:00 p.m.

Indoor Kart Racing & Lunch, Need 2 Speed **

* Meet in hotel lobby at 6:30 a.m. for transportation to Allen’s Golf Course ** Meet in hotel lobby at 12:30 p.m. for transportation to Need 2 Speed 24 May/June 2012

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2012 Annual Meeting

Schedule of Events Thursday, July 12 9:00 a.m. – 2:00 p.m.

Registration

9:45 a.m. – 11:00 a.m.

General Session

11:00 a.m. – 12:00 p.m.

Caucus (tentative, only held if deemed necessary)

12:00 p.m. – 2:00 p.m.

Lunch on own

2:00 p.m. – 4:30 p.m.

Town Hall Meeting

6:00 p.m. – 11:00 p.m.

Grand Banquet Celebration: Dinner, Awards, Board Installation, Dancing

Friday, July 13 7:00 a.m. – 8:00 a.m.

Rise n’ Shine Breakfast Buffet

8:00 a.m. – 12:00 p.m.

Chapter Presidents Orientation

12:00 p.m. – 1:15 p.m.

Lunch on own/Optional Buffet Lunch

1:15 p.m. – 4:15 p.m.

CSEA State Board of Directors Orientation

4:30 p.m. – 5:15 p.m.

Chairs Council

5:30 p.m. – 6:30 p.m.

Executive Committee Meeting

Saturday, July 14 8:00 a.m. – 8:50 a.m.

Board Meeting

9:00 a.m. – 4:20 p.m.

Committee Meetings

4:30 p.m. – 5:15 p.m.

Chairs Council (recap of the day)

5:30 p.m. – 6:30 p.m.

Officers Only Meeting

7:00 p.m.

Member Dinner

Sunday, July 15 8:00 a.m. – 2:00 p.m.

Board Meeting

Events, education, and locations are subject to change.

May/June 2012 | California Enrolled Agent

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Members

Member Benefits: Much More Than Just Discounts By Nichole Ralls, EA

T

he benefits of being a Member of CSEA run the gamut from discounts, networking and public information and awareness, to advocacy and so much more. As you will see from the testimonials below, everyone has a different view of the most important benefit of being a member of CSEA. When I first joined CSEA it was strictly for the discounts on education. As I started attending more events, I realized the amazing benefit of having a network of colleagues with whom I formed relationships over the years. In the last few years I have realized that the real benefits come from

becoming more involved in CSEA. I’ve discovered that you always get far more than you give and you can always give more than you realize. If you are willing to invest your time you will see the truest benefits to our Members are intangible. I also have a much deeper appreciation of everything done on our behalf by both the volunteers and staff. As you read these testimonials I urge you to write one of your own. Now that you know what we all love about being Members of CSEA, we would love to know what your favorite benefit is! Read what our Members have to say about their favorite benefits.

“We have chosen a crazy occupation. To consider going this alone is even crazier! CSEA offers a base of support that is incomparable. Members do not compete, they support one another!” – Christine M. Cromwell, EA, Santa Rosa, CA (North Bay Chapter; on left) “My membership with CSEA gives me access to knowledge, research and great continuing education. I make connections with other tax professionals and Enrolled Agents with similar concerns and needs. CSEA provides representation at local, state and federal levels to advocate for accurate and fair tax administration.” – Mari Featherstone, EA, Windsor, CA (North Bay Chapter; on right)

“Being a Member of CSEA provides many opportunities to meet and interact with other tax professionals, allowing exchange of knowledge and best practices. As a first time attendee of CSEA’s Super Seminar this year, I was thrilled by the outstanding speakers and the informative and timely subjects presented. Also, as a CSEA Member, I appreciate the 10 to 20 percent discounted prices on products and supplies I purchase every tax season.” – R. Luz Orozco, EA, Los Angeles, CA (Los Angeles Chapter)

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Members continued from p. 26

“My CSEA membership has been beneficial in many ways. The education offered by CSEA is top notch and a real value for Members. In the past I have attended both the digiTAX online seminars and the live Super Seminars and found the topics to be timely, the information invaluable in practice and the instructors engaging. I am excited about the prospect that the CSEA Education Committee is planning to offer topic tracks at the Super Seminars and more Internet classes for the future. Being aware of bills proposed or being considered by our state legislators, which impact me or my clients is important, too. Participating on the CSEA Legislative Committee enables me to know what bills are being proposed or considered. It gives me the opportunity to actively express support or opposition to the bills by speaking directly to our state representatives and their staff members. I also enjoy networking with Enrolled Agents from the other California Chapters who want to make an impact on state legislation – as our numbers increase we can expand our circle of influence.” – Larry Behage, EA, Campbell, CA (Mission Chapter)

“I really enjoy the dinner conversations with other EAs during our monthly dinner meetings. This provides an opportunity to hear what other sole practitioners are going through (so I know I my challenges are normal) and to get to know others I can call on when I want to bounce an issue off another EA.” – Denise Tomczak, EA, Auburn, CA (Sacramento Valley Chapter)

“The greatest benefit I enjoy as a member of CSEA is the opportunity to connect with other Enrolled Agents and tax professionals. The ability to easily reach out to trusted colleagues for exchange of ideas, problems and solutions, and mentoring is invaluable.” – Mark Howes, EA, San Francisco, CA (Golden Gate Chapter)

“I love networking with everyone and making new contacts. Attending CSEA’s premier education event, Super Seminar, I am learning more than I ever imagined!” – Lauren Padilla, EA, Redlands, CA (Orange County Chapter) “For me, CSEA benefits include all of the following: Discounts for various CSEA and non-CSEA seminars/ events. The various times our office has sent people to Super Seminar in Las Vegas, we have been able to take advantage of the significant Member discount. Political Affairs Committee (PAC) working for our profession. A case in point is CSEA’s influence in getting California to delay the property tax changes that were imminent. Help in getting our designation recognized by the public. In the past year I have had several clients call who were referred from the CSEA website.” – Richard G. Varnell, EA, La Quinta, CA (Inland Empire Chapter)

“I feel belonging to CSEA is one of the best membership decisions I’ve ever made! Knowing that I have a team of individuals working to protect my right to practice and fighting for me on issues that affect Enrolled Agents and taxpayers makes me proud. I also feel the education offerings are a cut above many of the other ‘tax professional’ organizations that offer a more remedial type of education. CSEA offerings step it up, which acknowledges our expertise in these matters.” – Steven C. Leibold, EA, San Diego, CA (San Diego Chapter)

Nichole Ralls, EA has been an Enrolled Agent since 2005, with her primary focus on corporations and business entities. She has been an active volunteer with CSEA for over ten years, currently serving as both First Vice President and State Director for the Sacramento Valley Chapter.

May/June 2012 | California Enrolled Agent

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Members

Tax Help Day a Dual Success By Patty Pringle, EA

S

ome of the best ideas come out of CSEA Committee Meetings. Such was the case when Lonnie Gary, EA, one of the Supporting Members of the Public Information Awareness (PIA) Committee, recommended that local Chapters sponsor a Tax Help Day. The goal would be to provide both community service and promote Enrolled Agents. Andy Rogers, EA, President-elect of the East Bay Chapter and also a Supporting Member of the PIA Committee, brought the idea to fruition. “We do not prepare any returns, just answer questions verbally,” said Rogers, who laid the groundwork. There were challenges such as finding a facility that was centrally located, accessible by public transport, and best of all, available at no charge. Rogers contacted the Oakland Women’s Initiative for Self Employment (WISE) headquartered in Oakland, and coordinated the event for March 2, 2012. Several of the clients of WISE were eager to take advantage of the free advice being offered. Participants were also encouraged to use social media to help publicize the event. Among the Chapter Members participating were Lonnie Gary, EA, Andy Rogers, EA, Monty Lee, EA, Al Wise, EA, Clare Flores, EA, Sal Romo, Jr., EA, Mark Bole, EA, Eva Konigsberg, EA and current President of the East Bay Chapter, Patty Pringle, EA. Volunteers each filled a two to four hour shift from 9 a.m. to 4 p.m. and staffed four desks. Mark Bole, EA described his talk with one of the people he helped. “This individual was just starting a landscaping business and was unaware of many of the tax aspects of setting up a business in the first year. With a little help from my quick desk reference tax book, I was able to get her set for avoiding a big headache down the road.” The participants had the opportunity to impress potential clients as well, said Rogers. “I got a client out of the process, once she realized what a mess she actually had, and that she was not going to be able to file herself. She had a wrongful termination settlement, started a small business and was foreclosed on, all in the same year.” One of the participants I helped was in the process of starting up a catering business. She had questions about depreciation and deductible expenses. How should she keep track of mileage and vehicle expenses? She took copious notes and was very appreciative to get the advice of a professional for free. This was such a successful event for the East Bay Chapter that there are plans to expand to several locations in 2013.

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What a wonderful way to give something back to the community, by providing a free public service and getting the word out about Enrolled Agents. For information on how your Chapter can get involved in sponsoring a Tax Help Day, please contact the CSEA office. Patty Pringle, EA is President of the East Bay Chapter. Patty has served on the CSEA Board of Directors, has been a Member of the CSEA Education Committee and the CSEA Membership Committee, and a Supporting Member of the CSEA Ethics Committee. Patty has been an Enrolled Agent since 2007 and currently has her practice in Dublin, CA. East Bay Tax Professionals specializes in tax preparation and representation for individuals and small businesses. Ms. Pringle expresses her sincere appreciation to Mark Bole, EA for his assistance with this article. PAID ADVERTISEMENT

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Members

Welcome New Members, Associates, and Affiliates Welcome to the following people who joined CSEA between March 1, 2012 – April 30, 2012 Members

Shannon Miller, EA (Channel Islands)

Kathy Holloway (Orange County)

Sue M. Amicone, EA (South Bay)

Herb E. Minnichhofer, EA (Golden Gate)

Brian C. Hurley (Orange County)

Miguel Arana, EA (San Diego)

Juston Montano, EA (Sacramento Valley)

Patricia Kasavan (East Bay)

Viktor Badalyan, EA (San Diego)

Rachelle Nguyen, EA (East Bay)

Nicole M. Linsday (Big Valley)

Jean R. Banks, EA (San Fernando Valley)

Gloria K. Pearson, EA (North Bay)

Renee L. Lorah (Inland Empire)

Svetlana Black, EA (Golden Gate)

Grace A. Rauen, EA (Los Angeles)

George Mahoney (Central Coast)

Mary P. Bracy, EA (Orange County)

Daniel Raval, EA (Golden Gate)

Karen E. Mareina (Far Northern California)

John Calcagni, EA (Golden Gate)

Joseph T. Ressler, EA (Inland Empire)

Christopher Nichols (Orange County)

Janet L. Chew, EA (East Bay)

Pamela R. Runk, EA (South Bay)

Lauren Padilla (Orange County)

Christopher Cooper, EA (San Diego)

Andrew J. Shourds, EA (Palomar)

Claudia Reyes (Mission)

Daniel W. Dabelstein, EA (Orange County)

Edmund S. Smith, EA (North Bay)

Jose E. Rodarte (Mission)

Jacqueline M. DeMartini, EA (Sacramento Valley)

Zenaida G. Smith, EA (San Fernando Valley)

Donald Smutz (San Diego)

Shubhangi K. Dharwadkar, EA (Orange County)

David Stenslien, EA (San Fernando Valley)

George Stanley (Central California)

W. Scott Eaton, EA (Orange County)

Aida Q. Torres, EA (East Bay)

Student Associates

Donita Einowski, EA (Big Valley)

Cloydell C. Viseth, EA (Palomar)

Don Adler (Channel Islands)

Michael G. Fine, EA (Golden Gate)

Sherie Ward, EA (Sacramento Valley)

Maria Najera (Orange County)

Jamy L. Fulton, EA (Inland Empire)

Fan Yang, EA (Mission)

Larry L. Grandfield, EA (Orange County)

Professional Associates

Scott Hall, EA (Mission)

Deborah Armenta (Orange County)

Robert Harris, EA (Orange County)

Frank Avila (Orange County)

Alexandra Herrera, EA (Los Angeles)

Teresa Bailey-Armenta (Orange County)

Basheer Husami, EA (Los Angeles)

Michael Barbeito (Inland Empire)

Phillip A. Longsworth, EA (San Gabriel Valley)

Terri L. Bursinger (Orange County)

Teruaki Makishima, EA (Orange County)

Patrick S. Callahan (Mission)

Jimmy J. McAfee, EA (Mission)

Kimberly Dewey (East Bay)

Deborah B. McFarland, EA (South Bay)

Josephine German (South Bay)

Fereydoun Mehran Razi, EA (San Fernando Valley)

Noemi Gonzalez Gavia (Mission)

Hirofumi Midorikawa, EA (Mission)

Amanda Gudino-Gonzalez (East Bay)

In Memoriam The California Society of Enrolled Agents would like to pay tribute to those Members who have passed away since our last magazine issue. Each of them made a valuable contribution to our organization by supporting their Chapters and CSEA. They will be missed.

Marguerite O. Lofy, EA Kern Chapter Founding Member Joined: 1985 Bruce D. Lacina, EA Golden Gate Chapter Board of Directors Joined: 1991

David Hilliard (Orange County) May/June 2012 | California Enrolled Agent

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Members

2012 CSEA Events Calendar July 4, 2012

CSEA office closed in observance of Independence Day

July 10 – 12, 2012

August 22, 2012

Federal Representation Workshop Sacramento, CA

September 3, 2012

CSEA 36th Annual Meeting Red Lion Hotel, Redding, CA

CSEA office closed in observance of Labor Day

July 13 – 15, 2012

September 6, 2012

CSEA Board and Committee Meetings Red Lion Hotel, Redding, CA

Federal Representation Workshop Laguna Niguel, CA

August 14, 2012

September 21, 2012

Federal Representation Workshop Los Angeles, CA

State Tax Agencies Liaison Meeting Hyatt Regency Sacramento, Sacramento, CA

August 16 – 17, 2012

September 21-23, 2012

Tax Practice Management Workshop CSEA office, Sacramento, CA

CSEA Board and Committee Meetings Hyatt Regency Sacramento, Sacramento, CA

August 21, 2012

Federal Representation Workshop Oakland, CA

Member Classified Ads Member classified ads can be posted directly on the CSEA website at www.csea.org/resources-classified.asp. TAX PRACTICE FOR SALE Retiring Enrolled Agent with approx. 1,550 clients desires an experienced EA/CPA to buy year-round tax practice. Practice is located in Stockton, CA and has been in business since 1946. For more detailed information please email Mark at [email protected].

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Members, Associates, and Affiliates of CSEA and Members of NAEA may advertise in this section; rates are $1 per line (or partial line) per issue, minimum $5. A line consists of 38 characters. The deadline for classified ads is the first of the month two months prior to the cover date (e.g., the deadline for the November/December issue is September 1). Email ads to [email protected] with the subject line CSEA CLASSIFIEDS or mail with check to CSEA, 3200 Ramos Circle, Sacramento, CA 95827-2513. Advertisements in this section are limited to employment, equipment, or practices for sale or purchase, office rental or shares, or other non-commercial Member messages. Advertisements for services, products, or educational events must run as display advertising; contact CSEA for rates. Each submitted advertisement is accepted at CSEA’s sole discretion.

Members

CSEA BUSINESS PARTNERS DIRECTORY EA Clothing/Awards & Promotional Marketing Graphic Promotions Litza Coughlin, CAS 7616 Telegraph Avenue Orangevale, CA 95662 800-685-6648 www.graphic-promotions.com [email protected]

Education/RTRP & SEE Exam Preparation ExamMatrix EA & RTRP Exam Review Joseph Yoder 7991 Shaffer Parkway, Suite 100 Littleton, CO 80127 800-272-7277 www.ExamMatrix.com/Demo [email protected] Fast Forward Academy, LLC Matt McBride 529 Versailles Drive, Suite 205 Maitland, FL 32751 888-798-7277 www.FastForwardAcademy.com/CSEA [email protected] Western CPE www.westerncpe.com Use your Chapter Discount Code

Merchant Credit Card Processing BancCard Adam Fox 7135 Charlotte Pike, Suite 200 Nashville, TN 37209 888-741-2262, Ext. 148 www.banccard.com [email protected]

Insurance

Publications

American Income Life (No Cost Accidental Death & Dismemberment Policy & Health Services Discounts) Sara Thrailkille 4071 Port Chicago Highway, Suite 200 Concord, CA 94520 888-252-3550, Ext. 229 www.ailife.com [email protected]

CCH, A Wolters Kluwer Business (U.S. Master Tax Guides & Guidebook to California Taxes) Kim Agricola 4025 West Peterson Avenue Chicago, IL 60646-6085 877-571-2841 www.wolterskluwer.com [email protected]

Ames Grenz Insurance (Medical, Dental and Vision Plans) Carl Trexler 3435 American River Drive, Suite C Sacramento, CA 95864 916-486-2900 www.amesgrenz.com [email protected] David White & Associates (Disability, Long Term Care & Term Life Insurance) David White 3150 Crow Canyon Place, Suite 200 San Ramon, CA 94583 800-548-2671 N. CA 800-653-8003 S. CA www.dwassociates.com [email protected]

Tax Materials Inc. (The Tax Book) Jacob Meyer 15105 Minnetonka Ind. Road, Suite 221 Minnetonka, MN 55345 866-919-5277 www.thetaxbook.com [email protected] Thomson Reuters (Quickfinder Handbooks) Tonya Davis 36786 Treasury Center Chicago, IL 60694-6700 888-611-5906 www.thomsonreuters.com [email protected]

Placer Insurance (Discounted Errors & Omissions and Bonding for Tax Professionals) Dineen Huft 5 Sierra Gate Plaza, Second Floor Roseville, CA 95678 800-642-5037 www.placerins.com [email protected]

May/June 2012 | California Enrolled Agent

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Premier Agency Inc. DBA Placer Insurance Agency.

32 May/June 2012

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