We like the idea of funding retirement accounts with traditional investments, such as publicly traded stocks, bonds and mutual funds. Some people think they can do better if they set up a “self-directed” IRA, often with unfortunate results. A recent case involving a transfer of S corporation stock to a Roth IRA is a case in point.

(more…)

The IRS is gearing up a program under which paid return preparers must meet certain requirements, including passing a competency exam, unless they hold certain credentials (for example, attorneys, CPAs and enrolled agents). The deadline for passing the exam is December 31, 2013. According to an information sheet released by the IRS, the 2½-hour exam includes multiple choice and true-false questions, and will be administered at Prometric testing centers at a fee of $116. Those who fail the exam can take it again without limit but the fee applies to each sitting. Participants will not be permitted to bring materials into the exam but will have access to Form 1040 and Publication 17.

Comment: Although access to these items may seem to make the exam quite easy, it makes sense to allow them because in actual practice return preparers can refer to these items.

Details on the IRS program are available in their guide to PTIN requirements.

Our Reference Room now reflects updated tax figures. Visit for the new tax rate schedules, personal exemptions, retirement plan limitations and other numbers used in calculating federal taxes.

In yesterday’s address on jobs creation President Obama mentioned patent legislation that has just passed. Among other provisions, the new law prevents the grant of future tax patents. These patents have been heavily criticized for carving out tax-saving techniques that cannot be used without paying royalties to the patent holder. Another concern has been the notion that in granting a patent, the government implicitly approves of a technique that may not hold up in court. The legislation does not prevent the patenting of technology for preparing tax returns or managing finances, but no further patents that restrict the ability of taxpayers to use tax-saving techniques, or advisors to recommend such techniques, will be granted.

The legislation applies to any patent issued on or after the date President Obama signs the law, including currently pending patent applications. It does not affect tax patents that have already been granted, however.

The IRS is gearing up to impose a testing requirement on tax return preparers who lack the professional qualifications of CPAs, attorneys and enrolled agents. Those who are anticipating the need to take this exam may be interested in the specifications released by the IRS (PDF). The document lists the areas to be tested, the weights given to each area, subject matter covered within each area, and source documents for relevant information (such as IRS publications, return instructions, and Circular 230).

For the most part this document includes pretty much what you would expect. One small surprise is the inclusion of alternative minimum tax (“AMT”). Apparently the powers that be decided you aren’t competent as a return preparer unless you know the basics of this tax. Unfortunately, the IRS has never seen fit to release a publication describing how the AMT works, so the only official reference they can offer for learning about it is Form 6251 and instructions.

Our free online guide to AMT offers an overview of how this tax works.

A new report from the Congressional Research Service highlights the need for legislative action on the alternative minimum tax (“AMT”). Without a change in the law, some 34 million taxpayers will incur this tax in 2012. (more…)

Can you deduct the cost of cat food and litter? Maybe, but not for the cats you love most. (more…)