Tax Resolution Services Prove Valuable

  • Written by T. Steel Rose, CPA, ACS Editor

rose steelTax Resolution is a fascinating way to expand your firm as long as you don’t overpromise expected results. CPAs, attorneys and EAs are in a unique position. Only these credentialed professionals are able to represent taxpayers before the IRS without the client being present. There is a greater need because of the proliferation of correspondence audits and horror stories of dealing with an understaffed IRS. There are many good reasons for clients to never talk with the IRS. Clients can rarely improve the situation. Now technology is making it easier by creating templates for forms, letters and transcripts.

Attorney Kurt Avarell, founder of Canopy Tax said one in 10 Americans have some problem with the IRS. “One of the most dangerous positions for a CPA is when they do something they don’t do very often,” Avarell said, “Some CPAs specialize in tax resolution work. It is unusual for a tax practice to not do resolution work.” To get started you need your client to sign a form 2848 power of attorney or a form 8821 for information only.

The system he created helps walk the accountant walk through how to deal with the IRS with all the forms and letters they need to solve the problem. According to Avarell, the Canopy Tax system logs into eServices and pulls down tax transcripts. “You can see if someone filed their estimates,” Avarell said. “Canopy also parses out codes to provide a 10 page transcript in readable form.”

Avarell came up with the idea in New York doing pro bono work on the side handling tax resolution cases. Avarell got a lot of satisfaction helping average Americans who made a mistake. “They were not going rogue,” Avarell stated, “it’s because the tax code is complex and incomprehensible. Most people who owe money are not tax protestors. There were several who did not have enough money because of a medical emergency. They may have pulled money out of an IRA that had withholding but the tax withheld was not enough.”

After his pro bono experience, Avarell taught himself how to program and built the original Canopy Tax system in his basement. “The IRS is sending more notices,” Avarell said. “Mail audits are up considerably. The IRS has cut back on auditing and the way they do auditing. They have cut back in the collection division.” CPAs will often wait on the phone for hours to talk with the IRS Collections Unit. “At a conference,” Avarell said, “I heard a person who will wait on hold with the IRS and then sell their spot in line.”

Tax Resolution is offered by highly reputable attorneys, CPAs and a few not so reputable. The Offer in Compromise (OIC) program enables taxpayers to resolve debts by entering into an agreement with the IRS for reduced payments. A few high profile cases have involved Tax Resolution businesses which overpromised OIC results. However, the majority of people do not qualify and that fact was not made evident in the advertising for these services.

An Offer in Compromise is not the primary way to get satisfaction. “There is always some relief,” said Avarell. “The best case is you get out for much less than you owe; the more common result is to get someone on a payment plan. The client calls the CPA because they have levied their wages. It is rare for the IRS to take a house or a car. They don’t do that, but the fear is out there. So just to get them on a payment plan is a relief,” continued Avarell. “There is a first-time penalty abatement which sometimes removes all of the penalties. It is rare to see interest removed. It is a much higher standard. It is a smart avenue to try. There are 50-100 penalties; they are expensive. The most common are failure to file on time, failure to pay and the accuracy related penalties like taking too much of a mortgage deduction,” Avarell elaborated.

Faron Adamson, CPA has two tax practice offices in Missouri and likes Canopy’s workflow system and customizability. “It helps workflow scheduling because clients can log in and interface securely,” Adamson said. “It is satisfying to see it solve CPA’s pain points,” Avarell concluded.

Publishing CPA Magazine since 2002, T. Steel Rose began his career with Price Waterhouse leading to the start of Rose & Cash, CPAs. He was a VP for Solomon Software, now owned by Microsoft, and launched CPA Software News in 1991.

Write comment (0 Comments)

Lewis Testifies at Congressional Committee

  • Written by T. Steel Rose, CPA, ACS Editor

troy lewis testifyChairman of the AICPA Tax Section’s Tax Executive Committee, Troy Lewis, CPA, testified before the Small Business Committee of the U.S. House of Representatives in July of last year to advocate on behalf of the profession and the US taxpayer. As the most visible CPA tax advocate for the profession, CPA Magazine reached out to get his perspective on the state of today’s CPA tax firms.

Lewis is the sole proprietor of Lewis & Associates, CPAs, LLC and a VP and chief enterprise risk management officer at Heritage Bank in St. George, Utah. He acts on behalf of the Institute in tax matters. He manages 14 tax committees and technical resource panels of the Tax Section.

What do you foresee for the future of CPA tax practices?

Considering FASB ASC 740, accounting for income taxes, is the leading cause of restatement of financial statements the tax practice of the future is more reliant on technology and less dependent on human capital. Taxes practices are growing as clients use taxes for business decisions.

What was the most burdensome problem this year?

The inability for us to serve clients is burdensome. I waited for over an hour, was transferred and got a reset instead of a courtesy disconnect. It got to the point that regional firms hired seasonal workers to have people just call the IRS repeatedly, which says there is a problem with the IRS. The AICPA committee pleaded with Congress to study it. Congress believes there is waste at the IRS. Whoever is at fault, it impacts the front line CPA. The IRS is losing the battle for confidence in the IRS. It will take a generation to correct the perception.

The U.S. Government Accountability Office needs to come in and determine what the balance is between service and enforcement. The current output is unacceptable.

What do you see as the best and worst technology?

I think firms are making better utilization of cloud and document management to become the norm. You can’t be cost competitive if you are not using compliance tools. You map the General Ledger to the tax return once rather than every year. We still suffer from information overload to get the right information at the right time. It is a time drain; just finding it is a problem.

Do you have any comments on ACA’s affect on CPA firms’ tax practice?

In 2013, Section 1411 created a tax on Net Investment Income for more affluent taxpayers. There was not enough time to address it. It was painful for the CPA firm but not well known because it was considered a rich person problem. Implementing ACA is broad based, so each company has to ask each person to determine if they had insurance for each month. So the question came up in the CPA office and CPAs became administrators. The ACA website is good, but CPAs are stuck in the middle; we felt we were in the policing business. So now these 1095 forms are required for most but not all. Calculating the FTEs is not perfectly clear. Individuals will receive a 1095 and ask what to do with it. I felt like a junior deputy of the IRS to be compliant, and still remain professional. There is a dilemma for those who claimed credits for a decision made two years prior, and then getting a lower refund based on over-claiming credits. This leaves a gap. The ACA is a wide applicability issue. No one gets a pass. You have to determine if you are compliant.

Do you have any comments on DOL interpretation of the overtime affect on CPA firms?

The new rules would increase from $23,660 to $54,400 annual salary for employees that would be required to be paid overtime. The AICPA sent a letter to Mary Ziegler at the U.S. Department of Labor commenting on the proposed rules. The significant impact is on the smaller firm for the increased payroll cost. It could impact the overall impact of hiring. There is also an impact of complying with the rule. It would most affect the small firms and NFPs who are less likely to handle it.

Does your firm represent clients before the IRS? Do you have any comments on how to be effective in that area?

Just like the phone service, the correspondence audit is not timely. Clients don’t understand why it takes so long to solve it. Try explaining to them how we have to go back to the 70’s and can’t email. It’s like pull out the lava lamp and put a stamp on it and wait. Olsen (Taxpayer Advocate) said the IRS will never be loved but should be respected. It could take the IRS four to six months to handle a situation that could be solved in a few minutes over email.

What made you specialize in tax?

In college I had to make a decision like Yogi Berra. I noticed very smart people were struggling with taxes. It was saying to my soul, not religious, but it just felt right. We (CPAs) have to be credible and independent. In tax we can advocate with clients to become tax efficient to enable good business decisions.

What do you do in your free time?

Now it’s long distance running; I’m a reformed drummer from college.

Write comment (0 Comments)

6 Tax Tips for Tax Season

  • Written by T. Steel Rose, CPA, ACS Editor

rose steelThe dawn of a new year brings a fresh opportunity to help clients make tax-optimized decisions. Here are six tips and tricks to help tax professionals manage, enhance and expand their practice this tax season.

IRS Tax Tools

Reliable resources to answer common tax questions are worth their weight in gold. Two such tools are the IRS Tax Map and the IRS Interactive Tax Assistant tool. The Tax Map provides tax law information integrated with related tax forms, instructions and publications. While both resources are slow to the point of timing out, they are reliable and worthy of a spot in a tax professional’s toolbox.

AICPA Marginal Tax Rate Calculator

Helpful tools are available to enhance the work you already perform. The AICPA provides a Marginal Tax Rate Calculator to show clients and new staff members the effect of deductions and tax credits on the actual tax rate: Whether clients are in the 15% or 39.6% tax bracket, it helps to show them their effective tax rate on tax decisions. This calculator is one of several provided by the AICPA at

Electronic Fund Transfer

The fastest way for a client to receive their refund is to combine e-file with Direct Deposit. About eight in 10 taxpayers use direct deposit. This is likely because the IRS issues nine out of 10 refunds in less than 21 days. If money is to flow the other direction because your clients owe taxes, the best way to make the payment is with IRS Direct Pay. This free service can transfer money using the client’s checking/savings account, debit/credit card, or Electronic Funds Withdrawal. Refer to the “Payments” tab at for further guidance on transferring money electronically.

Late Payment

If a client owes money to the IRS and cannot make the entire payment, they should pay as much as possible to reduce interest and penalties for late payments. They may file Form 9465, Installment Agreement Request, with their tax return requesting to pay in installments. They may also use the Online Payment Agreement tool to request more time to pay. You may file this for them if you have power of attorney.

Affordable Care Act

Provisions of the Affordable Care Act can cost clients in the form of additional taxes and penalties without the “minimum essential coverage.” The fee increases each year until it is near the price of the cheapest available health plan. One such provision is the Individual Shared Responsibility Provision. In 2015, the fee was $325 for an uninsured adult and $162.50 for an uninsured child (up to $975 for a family) or 2% of the person’s taxable income, whichever is greater. In 2016, the fee is $695 per adult and $347.50 per child (up to $2,085 for a family), or 2.5% of household income above the tax return filing threshold for filing status, whichever is greater. Your client may pay 1/12 of the total fee for each full month in which a family member went without coverage or an exemption. See Individual mandate for more details on the fee. The IRS cannot enforce the Individual Shared Responsibility Provision with liens or the typical methods of IRS collections. The only way for the IRS to collect an unpaid fee for not having health insurance is to withhold it from a possible refund after the tax return is filed.

The easiest way to qualify for an exemption is to go to HealthCare.Gov and sign up for a marketplace account which automatically determines if a client qualifies for exemptions. One such exemption is the hardship exemption which can be used to enroll in the catastrophic plan. A catastrophic plan features lower premiums.

Applying for an exemption should not be left to the last minute. Clients must file the form and then wait for confirmation in order to report the exemption. In addition, many exemptions require specific documentation to verify eligibility. Obtaining the necessary documentation also takes time which will delay any refund.

Tax Transcipts

One final tax practice management tip is rather than pay $50 per return to request a copy of a return from the IRS by using Form 4506, Request for Copy of Tax Return is to request a Tax Return Transcript free of charge using Form 4506-T. There is an automated self-help service at Click on “Get a Tax Transcript” or call 1-800-908-9946.

Publishing CPA Magazine since 2002, T. Steel Rose began his career with Price Waterhouse leading to the start of Rose & Cash, CPAs. He was a VP for Solomon Software, now owned by Microsoft, and launched CPA Software News in 1991.

Write comment (0 Comments)

Crowdfunding Requires Reviews by CPAs

  • Written by T. Steel Rose, CPA, ACS Editor

rose steelThe need for CPA reviews may explode when Jumpstart Our Business Startups (JOBS) Act stock offerings begin this May. Section 4 of the Securities Act of 1933 is amended to permit crowdfunding investments in emerging growth companies (EGC) of up to $1 million annually. Signed April 5, 2012, the JOBS Act recognized equity crowdfunding as an offering of unregistered securities through registered websites. After four years of deliberation the SEC will issue its final standards for crowdfunding in 2016. The time for CPAs to begin preparing is now.

Four years is a long time for an Act of Congress to take effect. At least one good thing came from the wait. Originally, if an EGC planned on raising between $500,000 and $1 million their financial statements would have to be audited. Now crowdfunders may proceed with a review of financial statements for the first offering. The rules already permit reviews of financial statements for campaigns raising between $100,000 and $500,000.

Prior to enactment of the JOBS Act entrepreneurs and charities had success on the Internet raising money from contributors in exchange for rewards or completed products. This Kickstarter type of funding, referred to as Reward Crowdfunding is famous for launching the Pebble Watch and Oculus Rift virtual reality glasses. The problem is supporters put up money and received a product; with equity crowdfunding investors get a piece of the company.

Title III of the JOBS Act entirely revolutionizes the eight decades old 1933 SEC Act. For CPAs with an entrepreneur interest, it’s a brave new world. The JOBS Act permits securities-based crowdfunding and permits Internet funding platforms that facilitate the offer and sale of securities without registration with the SEC as brokers. There are still no significant investor protections that purportedly delayed the rules for four years; so much for an Act of Congress.

The JOBS Act also prevents states from policing crowdfunding offerings until an alleged fraud has been committed. This means investors will need to do more research before they use the online sites.

“The two largest sites for reward crowdfunding, Indiegogo and Kickstarter have not experienced a high fraud because of the daylight effect that the Internet brings,” according to David Marlett, founder of the National Crowdfunding Association.

CPA Involvement

CPAs know the SEC wants to protect the small investor, which is why equity crowdfunding is so revolutionary. Anyone can invest at least $2,000. Beyond that amount, an investor is still restricted based on income or net worth. Issuers can use email, Facebook, and Twitter to offer an investment in their company as long as they hit 100% of their funding target.

“Anyone with over $100,000 annual income can invest 10% of yearly income.” said CPA firm audit director Mike Sharp. “If under $100,000 the investor can invest 5% of annual income or up to $2000. They already lifted the ban on advertising.

“For our firm, we will focus on startups and established companies who are looking to expand for these emerging growth companies. Certain sites will focus on different specialized areas. You really have to do some due diligence on how the accounting comes together. It may be the owner themselves. They may have only kept cash books.”

“They may not have any books,” said Don Pfluger, CPA, audit partner with Gallina. “We may help them select their accounting system. It will be all along the gamut. They may have QuickBooks or they may be pure startups with no transaction history to speak of.”

A review of financial statements reduces the cost and the assurance provided by an audit.

“A review provides limited assurance that is limited to inquiry and analytics to evaluate whether the statements have material misstatements and correcting them,” said Angie Moss, CPA, formally an audit partner with Sanford, Baumeister & Frazier. “There is no confirmation, or third party verification. You don’t confirm anything. You make inquiries whether cash was reconciled. You ask, was accounting consistent? You perform analytics on the numbers themselves. Then you write up the statements.”

“A review is a different level of service,” said Pfluger. “You do ratio analysis and ask questions. You get limited assurance that things are not materially misstated. With an audit you get reasonable assurance there are no misstatements. The general rule is; if an audit is $1, a review is 60 cents because you don’t have to do the audit tests.”

For clients interested in equity crowdfunding they must realize they are selling securities which is a highly regulated activity. Clients need to understand what they cannot do in order to keep them out of trouble. Each offering must include a business plan for a bona fide business and not an investment vehicle.

Failing to comply with the rules could mean the loss of their exemption. Clients cannot list their offering on more than one platform. Offering investment advice by the funding portal is not allowed. A launch party to promote your client’s offering is not permitted unless the portal is also a registered broker-dealer.

If a client hits their funding target, investors have the right to rescind. Clients must disclose anything about their business that has a material impact on an investor’s decision to back it. While the audit requirement has been removed for first time crowd fund issuers; clients must provide complete financial statements including balance sheet, income statement, statement of cash flow, and statement of change in owner’s equity. Clients raising under $100,000 must disclose their income tax return and certify it is correct.

Companies not eligible are non-U.S. companies, Exchange Act reporting companies, certain investment companies, and companies with no specific business plan or whose plan is only for merger or acquisition with unidentified companies.

Not everyone is a fan. Richard Swart, chief strategy officer at NextGeneration Crowdfunding may have built the largest collection of crowdfunding data nationally. “The collapse of fund raising from banks has forced a need for an access to capital,” Swart said. “Title III Internet fundraising from unaccredited investors may be the most expensive way to raise capital at 12-37%.” Swart is more bullish on the broader form of crowdfunding. “There are 11 different types of social funding. For alternative finance, the largest group in dollars is peer lending. Crowdfinance peer to peer lending has exploded,” he said.


The following disclosure financial statements are required for the SEC, investors, and the Internet portal facilitating the offering include: 

• Complete financial statements.

• A discussion of the company’s financial condition.

• A description of the business and the use of proceeds from the offering. 

• Information about officers, directors, and owners of over 20%.

• Certain related-party transactions.

• The price of the securities.

• The target offering amount.

• The deadline to reach the target offering amount, and whether the company will accept investments beyond the target.

• An annual report.

Crowdfunding Platforms 

MicroVentures claims to be one of the top five leading crowdfunding platforms in the U.S., raising more than $80 million from 30,000 investors. CEO Bill Clark said, “The new Title III crowdfunding allows investments not hidden behind a wall. You will have a lot more investors. The portal raise will not be more than normal, but the cost is $5-15,000. The portal charge is 5% of the raise which includes the escrow, communication, ACH or money transfers. We meet the team behind the company. If we believe in the story and the team the investment committee reviews the financials and projections and competition. It takes two weeks to consider, two weeks to prepare, and 30 days to raise. Five weeks without and seven weeks with an audit.

“The exit’s through an IPO which is rare. More likely a larger round will cash out the investors at a certain valuation. There could also be a merger. There should be a private market for these deals down the road. Investors may need liquidity.”

StartEngine is a portal that already executed crowdfunding with non-accredited investors through Title IV crowdfunding (Reg. A+). According to CEO Ron Miller, “Under Title III there are no other legal requirements other than being a corporation. The review cost would depend on the condition of the books. A small company who doesn’t have a CFO, the CPA needs to know the viability of crowdfunding for raising capital for these companies.”

Advice for interested CPAs continued with Douglas S. Ellenoff, a member of the law firm Ellenoff Grossman & Schole. “I believe there will be people [CPAs] who will spread their costs over several [crowdfunding] deals and get the opportunity to provide them, said Ellenoff.” Ellenoff expects Reg. A+ audits and the cost for reviews will probably come down. “Clever people are using technology to automate and intelligently reduce the cost of making it [an audit] happen,” he said.

Publishing CPA Magazine since 2002, T. Steel Rose began his career with Price Waterhouse leading to the start of Rose & Cash, CPAs. He was a VP for Solomon Software, now owned by Microsoft, and launched CPA Software News in 1991.

Write comment (0 Comments)

Tips and Tricks for Tax Professionals

  • Written by T. Steel Rose, CPA, ACS Editor

rose steel thumbHere are three quick tips and tricks to help tax professionals manage, enhance and expand their practice, including IRS and AICPA tax tools and a suggestion on how to apply them.

IRS Tax Tools

Reliable resources to answer common tax questions are worth their weight in gold. Two such tools are the  IRS Tax Map and the IRS Interactive Tax Assistant tool. The Tax Map provides tax law information integrated with related tax forms, instructions and publications. The Assistant Tool answers specific scenario questions but does not have 2015 included as this is being written. While both are slow to the point of timing out, they are reliable resources and worthy of a spot in a tax professional’s toolbox.

AICPA Marginal Tax Rate Calculator

Helpful tools are available to enhance the work you already perform. The AICPA provides a Marginal Tax Rate Calculator to show clients and new staff members the effect of deductions and tax credits on the actual tax rate: Whether clients are in the 15% or 39.6% tax bracket, it helps to show them their effective tax rate of tax decisions, especially before year-end. This calculator is one of several provided by the AICPA at

Savers Credit

The marginal calculator is especially useful for seeing the impact of tax credits over deductions, which brings me to a tip to help expand your practice. You can offer to take a look at your client’s parents and adult children’s returns to show them the tax saving potential of the Savers Credit. If the child is over 18 years old and five months out of college this credit can work as an above-the-line deduction and a credit. Code Sec. 25B can potentially save a married couple filing a joint return up to $1,000 when applied to the limit of $2,000 of qualified retirement savings contributions. The 2015 limitations are 50% if the taxpayer’s AGI is below $36,500, 20% if the taxpayer’s AGI is between $36,500 and $39,500, and 10% if the taxpayer’s AGI is between $39,500 and $61,000 (Rev. Proc. 2014-70). Married couples with AGI exceeding $61,000 may not claim the credit. Take a look at form 8800 to determine the aggregate amount of retirement plan distributions that may reduce the credit.

Write comment (0 Comments)