April 2001

The Tax Season Lowdown from Society Members

Last month, The Trusted Professional chatted with several members of the New York State Society of CPAs about the recently completed tax season, which, by most accounts, went off without a hitch. But of the four CPAs who were contacted, each cautioned that preparing and filing next year’s returns could be a different story if the major components of President Bush’s 10-year, $1.6 trillion tax plan become law.

“I gave up prognostication in the ’70s,” said Foundation for Accounting Education President Alan E. Weiner, head of the tax department at Holtz Rubenstein & Co. LLP. “We have an administration that is proactive and if it keeps hammering away [at taxes] something will happen, but whether it’s what people expect is something else.”

Though the Bush plan hangs in the balance, Weiner said he fears that the projected cuts could be relying too heavily on “phantom money” that will not materialize unless the economy begins to turn around. He also hopes the alternative minimum tax (AMT) will receive more attention. Weiner believes the AMT should be eliminated because it adversely affects people for whom it was never intended.

Like Weiner, Marc Albaum, a sole practitioner specializing in taxes, also believes the tax deductions people anticipate receiving could be significantly smaller than their expectations.

Maryann M. Winters, a partner in the Syracuse-based firm of Baasch Winters & Breen P.C., attributes the public’s more sophisticated understanding of this year’s tax situation to mass media coverage but also to last year’s presidential election, which heavily focused on the issue.

“People are aware of the changes in the tax law and they’re curious to see how they will be affected,” said Winters, whose closely held and small business tax practice has had to dispel some of the misinformation that reached its clients.

While other CPAs conjecture about the changes to the tax code and its effect on their practices, Estate Planning Committee Chair Alan D. Kahn of the AJK Financial Group said the Bush plan had an immediate impact on his work. In particular, the tax planner said he had to pay considerable attention to the distinct possibility that tax rates will be reduced retroactively for the 2001 tax season. In addition to the prospect of lower rates, Kahn said many of his clients showed an increased interest in mutual fund 1099 capital gains distribution.

Short of specific items, however, the four respondents said this year’s tax season went smoothly primarily because there were very few changes to the tax law. Consequently, the tax software performed really well—a luxury that both Winters and Weiner said they never take for granted.

“You can lose a couple of weeks getting the bugs out,” said Winters, who noted that tax software typically does not work when revisions have been made to the tax code.

On this point, Weiner commented that during “the last few years the software has been working just fine, and that is really helpful because you don’t want it crashing on you in the middle of the season.”

Although the 2001 season held few, if any, surprises for Holtz Rubenstein & Co. and, presumably, the majority of CPA firms, Weiner said there were a couple of relatively new developments that his firm brought to the attention of its clients. Among those, clients were instructed to be certain the names on their returns matched the Social Security numbers—potentially a greater concern for married women than men. According to Weiner, the Internal Revenue Service (IRS) cracked down on matching records this year and, in fact, the agency recently listed the item as one of the top errors for paid preparers of paper Form 1040s.