Key Tax Laws by Birthday

  • Written by Sidney Kess, CPA, J.D., LL.M.

mug sid kessMany of the tax rules for individual taxpayers depend on age. Attaining a birthday may entitle an individual to a special tax break or end entitlement to another. Here is a rundown of key birthdays and what they mean for federal income taxes. It should be noted that some apply on the date of the birthday, some rules apply when the birthday is achieved as of the close of the taxable year, and some apply with respect to the half-year birthday.

Age 13

The dependent care credit can be claimed for a child who has not attained age 13 (Code Sec. 21(b)(1)(A)). This means that expenses up to this birthday can be taken into account for the year in which this birthday occurs.

Age, however, is disregarded if the child is a dependent who is physically or mentally incapable of self care (Code Sec. 21(b) (1)(B)).

Age 17

A tax credit of up to $1,000 can be claimed for a child under the age of 17 (Code Sec. 24(c)(1)). If they turn 17 during the year, no credit is allowed for that year; the credit is not prorated for this purpose. There is no age exception for a disabled child (Polsky, CA-3, USTC ¶ 50,506).

Age 18

A contribution of up to $2,000 can be made annually to a Coverdell Education Savings Account (ESA) until a child attains age 18 (Code Sec. 530(b)(1)(A)(ii)). However, a contribution can be made until the birthday. For example, if a child becomes 18 years old on May 1, 2017, a contribution of up to $2,000 can be made for 2017 until April 30, 2017. The contribution amount does not have to be prorated for the portion of the year in which the child was under age 18.

Ages 19 and 24

For purposes of treating a child as a qualifying child for the dependency exemption, these two birthdays come into play (Code Sec. 152(c)(1)(C)). A child can be a qualifying child if younger than the taxpayer claiming the exemption and is under age 19. A child can continue to be a qualifying child up to the age of 24 if he/she is a full-time student and younger than the taxpayer.

However, a parent may still claim a dependency exemption for a child who does not meet the definition of a qualifying child if the child can be treated as a qualifying relative (Code Sec. 152(d)). Thus, if a parent is supporting a child who is 32 years old in the parent’s home, a dependency exemption can be claimed as long as the child’s gross income is not more than a set amount ($4,050 in 2017) and other requirements are met.

Ages 19 and 24 are also key birthdays for the kiddie tax (Code Sec. 1(g)). Once this age is obtained, all of a child’s unearned income is taxed only at the child’s rates rather than the parent’s top tax rates.

Age 26

Under the Affordable Care Act, a child can remain on his/her parent’s insurance policy until the age of 26. This is so whether the child is a dependent or even lives with the parent. However, once the child attains age 26, this coverage is no longer permissible.

Age 30

When a beneficiary in a Coverdell ESA attains age 30, the account must be distributed to him or her within 30 days of this birthday (Code Sec. 530(b)(1)(E)). Even if there is no actual distribution, it is deemed to occur on this date. Earnings in the account become taxable at this time.

However, the deemed distribution rule does not apply if the beneficiary has special needs. Also a deemed distribution can be avoided by changing the beneficiary of the account to a “member of the family” (as defined in Code Sec. 529(e)(2), such as the beneficiary’s child, sibling.

Age 50

Individuals with compensation from a job or selfemployment can make a “catch-up” contribution to certain qualified retirement plans and IRAs (including Roth IRAs). These additional contributions are permitted to enable workers to maximize retirement savings. Despite the term “catch up” for those age 50 and older, there is no relationship to prior contributions or the absence of such contributions.

For 2017, the additional catch-up amounts (Notice 2016-62):

• 401(k), 403(b), and 457 plans: $6,000

• SIMPLE IRAs: $3,000

• IRAs and Roth IRAs: $1,000

Age 55

The 10% early distribution penalty on distributions from qualified retirement plans prior to age 59 ½ does not apply if distributions are made because of separation from service after age 55 (Code Sec. 72(t)(2)(A)(v)).

As in the case of retirement plans and IRAs, additional contributions based on age can be made to health savings accounts (HSAs) beginning at age 55. The additional contribution is $1,000. This amount is fixed by law; it is not indexed for inflation.

Age 59½

The 10% early distribution penalty on distributions from qualified retirement plans and IRAs does not apply after attaining age 59 ½ (Code Sec. 72(t)(2)(A)(i)).

Age 65

An individual who uses the standard deduction can claim an additional amount for age (Code Sec. 63(f)). For 2017, the additional standard deduction amount is $1,550 for singles and $1,250 for joint filers (for each spouse age 65 and older).This applies to someone who attains age 65 before the close of the taxable year. It also applies to anyone with a January 1 birthday; he or she is deemed to have reached age 65 in the previous year. For example, a person who attains age 65 on January 1, 2018, can claim the additional standard deduction on a 2017 income tax return.

This age also impacts the threshold for filing an income tax return (Code Sec. 6012(a)(1)(B)). More specifically, the gross income threshold is increased by the additional standard deduction amount.

Age 65 is also the age when distributions from HSAs can be taken penalty free for nonmedical expenses. However, these distributions are still subject to income tax.

Age 70½

Becoming 70½ years old bars any further contributions to an IRA (Code Sec. 219(d)(1)). No contribution is allowed if this age is attained by the end of the year. This contribution limit applies even though the individual continues to work. However, contributions to a SEP and a SIMPLE-IRA, which are IRA-based retirement plans, continue past this age, even though required minimum distributions simultaneously start at this time, explained next.

Attaining age 70½ triggers the required minimum distribution (RMD) rules for qualified retirement plans and IRAs. Owners of these accounts must begin their RMDs by the end of year in which this age is reached. For example, an individual’s 70th birthday is March 1, 2017. She reaches age 70½ in 2017, so her first RMD is due by December 31, 2017. If her birthday had been July 1, she would not attain age 70½ until 2018 and her first RMD would be due by December 31, 2018.

The failure to take an RMD can trigger a 50% penalty (Code Sec. 4974(a)). However, the RMD can be delayed in some circumstances:

• The first RMD is treated as timely if taken by April 1 following the year in which the taxpayer attains age 70½. In the earlier example, she would not have a penalty if her first RMD were taken by April 1, 2018. However, in any event, the second RMD is December 31, 2018.

• An individual who is still working for a company with a qualified plan may postpone RMDs until actual retirement if the plan permits it. However, this delay does not apply to anyone who is a more-than-5% owner of the company. And it does not apply to IRAs and IRA-based plans (e.g., SEPs, SIMPLE IRAs, and SARSEPs).

There are no lifetime RMDs for the owner of a Roth IRA.


Attorneys are used to working with tickler systems and calendars to ensure that key deadlines for certain actions are timely met. The same methods should be used to ensure that age-related tax rules are observed.

Executive Editor Sidney Kess is CPA-attorney, speaker and author of hundreds of tax books. The AICPA established the Sidney Kess Award for Excellence in Continuing Education in his honor, best-known for lecturing to over 700,000 practitioners on tax. Kess is senior consultant for Citrin Cooperman, consulting editor to CCH and Of Counsel to Kostelanetz & Fink.

Trends Driving Small Firm Growth

  • Written by Lauren Clemmer

That does it take for a small firm to be on the path to growth? It takes vision and the willingness to do things differently. If you want different results, you can’t rely on the status quo. You should question the tried and true and create a new path. Firms experiencing the most growth are running their businesses in a different way. They are finding areas for focus that provide a competitive advantage. And they all put the client at the center of what they do, ensuring needs are met and they are helping them succeed. The following details the ways firms are driving growth from their own perspective.

Intentionally Establish Your Culture

Firms that are able to do things differently have a culture that supports growth at their core. MiddletonRaines+Zapata (MRZ) set out from its inception to think outside the box, even looking outside the industry for best practices.

“Growth starts with culture,” said Wesley Middleton, managing partner. “It has to be intentional.”

Culture has helped the firm grow from one office four and half years ago to four offices today. Known for energy, responsiveness and providing innovative solutions, MRZ is a place people want to work.

“Transparency is at the core of our business model. It’s how we build trust,” Middleton said. “Not only is innovation encouraged, but it is okay for someone to fail. That’s how they learn to do things better.”

Firm success also stems from:

• Investing in marketing and business development.

• Embracing digital marketing.

• Making client relationship managers the center of the client service model.

• Allowing partners to be great CPAs and not sales people.

• Trusting everyone to excel at what they are good at.

• Encouraging staff to become true advisors.

• Listening to what the client needs and delivering it.

By having a culture that puts the client first, plays upon individual strengths and focuses on the importance of the marketing and business development process, MRZ has created a winning business model.

Narrow Your Focus

High growth firms are twice as likely to be specialists according to Lee Frederiksen of Hinge Marketing. These firms experience 13.1% growth compared to 6.6% growth seen by generalist firms.

Family friendly and tech savvy firm Bohlmann Accounting Group wanted to build a firm that was “not your father’s CPA firm,” said Stehli Krause, office manager.

Bohlmann has a laser focus – specializing in international tax. Their staff is culturally diverse and representative of the industry they serve.

“Staff members are encouraged to promote our services in their home countries,” Krause said. Their focus is on serving the client and bringing services to them that help them manage their lives.”

The firm has uncovered a need for bookkeeping services in the international space, but they feel like they have just scratched the surface. They will continue to keep close to clients to discover other needs. This specialized focus is why the firm is up 21% over last year. Specialties level the playing field, allowing small firms to compete with larger ones, even on an international scale.

Package Services Clients Need

Rather than have a client come to you and tell you what they want to buy, try packaging and selling them what you know they need.

New Vision CPA Group takes this novel approach to selling services and keeps things simple. Every client starts with the Small Business Accounting & Tax Package which includes year-round advisory services. The firm specializes in working with small businesses, and they know what they offer and what they don’t.

“We meet with all clients four times a year, and they love it” said Jody Padar, CEO and principal, and author of The Radical CPA: New Rules for the Future- Ready Firm.

Through a customer-centric focus, Padar utilizes cloud solutions and social media to attract customers. She then provides value through a unique experience that is spelled out in her packages. As a result, the firm grew by 30% last year.

Don’t Skip the Strategy

If you want to have leverage when it comes to growing your firm, you have to start with a good strategy. But what should you include in your strategy? There is no uniform answer to that question, as there are many factors to consider. However, Frederiksen details the top four marketing plays that lead to growth:

1. Partnership marketing. Collaborate with another firm or organization to expand your reach.

2. Webinars and speaking engagements. Conduct these to promote thought leadership and get recognized.

3. Phone marketing. Conversations can provide additional information that leads to engagement.

4. Blogging and articles. Used to drive business to you.

As you look to grow your own firm, start by embracing change. Look at your culture to ensure it encourages innovation and spurs new ideas. Consider what you are doing differently from your competitors. This could be an industry and or service focus or packaging of your services. Move away from being a generalist and experience higher growth. Most importantly, have a plan. Don’t leave growth to chance.

Lauren Clemmer is the executive director of the Association for Accounting Marketing (AAM).

Technology and CPA Estate and Longevity Planning

  • Written by Martin M. Shenkman, CPA, MBA, PFS, AEP, JD

mug martin shenkmanEstate planning is a vital service for clients. While historically estate planning may have focused on estate tax minimization planning, for most clients estate taxes are much less of a concern, if any at all. The focus for all but the wealthiest clients is shifting to longevity planning and other non-tax aspects of estate planning. Practitioners can capitalize on this dynamic by modifying practice procedures, implementing new processes and capitalizing on some of the advances technology can offer. In some instances, how estate planning matters should be handled might differ from how other practice areas are handled. Many of the practical points below are simple “off-label” applications of existing software to address some of the unique aspects of the CPA firm’s estate planning clients.

Engagement Letters

Practitioners should periodically review estate planning engagement letters to update them to reflect new ethics rules, changing practices, integration of new technology into their practice, and other factors. For example, if the firm changes its policy on email retention or general document retention, that might be communicated to clients in the estate planning engagement letter. While some practices may destroy documents after a certain number of years, many estate planning documents should be retained indefinitely. From a tax perspective, an estate tax return Form 706 should be retained indefinitely because it can provide vital tax basis data in future years when an asset is sold. But there is another perspective to document retention for estate planning. Practitioner’s meeting notes may be invaluable to demonstrate a client’s state of mind or what the client wished to achieve in terms of his or her dispositive scheme, business succession plan, etc. CPAs will often engage in these discussions and document them. Saving those documents for when they might be needed could be a priceless benefit to the client and his or her family. These considerations may be unique to the estate planning department and it may need different approaches than the firm in general. With technology having effectively reduced the cost of document retention to near zero, this longer duration policy should be evaluated.

Practice Characteristics

A practice that predominantly focuses on a large volume of compliance work for lower wealth clients will have a different emphasis than a boutique firm serving a more limited number of ultra-high net worth clients seeking a different level of service and relationship. The communications, engagement letters and other aspects of administering the estate planning practice must be modified accordingly.

While this is certainly obvious it is common to see practitioners implementing forms they obtain without adequately tailoring them to the characteristics of their client base which may differ significantly from the clients of the person who created the procedure or form.

Communications Generally

As the focus of estate planning shifts from estate tax minimization to longevity planning, client needs and goals are evolving. A client who had been consumed with complex tax minimization strategies may have been more transactional in orientation. Complete the note sale or GRATs and thereafter, a much lower level of service may have been viewed as necessary to maintain that plan: e.g., a grantor Form 1041 for the purchasing trust and an annual note payment. These clients may not have required much communication other than a reminder to submit tax compliance information for the trust and a tickler to remind the client to meet or GRAT payments. In contrast, the later-life planning client will require more hands-on regular work from inception of the engagement and throughout their lives. This might include regular write-up of financial and other transactions, which may evolve into bill paying and more as the client’s health declines. These clients may welcome ongoing communication of ideas and planning thoughts.

For this work to be profitable, many aspects will have to be automated and handled in as routine a manner as possible. It will also be important to educate the clients that the services involved are not merely bookkeeping, but monitoring and higher level value added services that justify the billing rates of a partner overseeing the matter. Different forms of communication may be warranted.

Communications Incorporated into Monthly Billing

Your practice is likely sending out monthly client bills. The cost to process the bills and mail them is a fixed cost. You can use regular monthly billing as a means of communication, not only as a means of billing. For example, footers can easily be added to each month’s bills so that they appear on all client bills or bills of selected clients. These footers can include practice information that will protect the practitioner, as well as planning tips. This can provide a no cost means of communication with clients. Many firms rely on monthly electronic newsletters to communicate with clients. While this is a low cost means of communicating with many clients, is it really effective for the typical estate planning client? Many estate planning clients are much older than other clients of the firm, and many simply do not use email or even if they do are not so facile with it that they will really click through all the links to read a relevant article in an e-newsletter. What is the open rate on your firm’s newsletter? Is that really high enough to rely on as a means of client communication? Adding informative footers to a bill will have a 100% visibility rate (if not you have a receivables issue!). This might include information about new tax developments, suggestions as to steps many clients should consider, a new firm document retention policy or a change in how Social Security is calculated that might affect the client. For example, the following are illustrations of footers to add to the billing program and which could be updated every month so that over the course of any time period every client will receive a range of cautions and planning ideas. Just as important, these will be saved as a permanent record of a communication with the client that might prove protective to the practitioner if a problem later arises. These can be very protective of the practitioner if a client later claims they were not informed of certain planning opportunities or changes in the law.

• Aging: As we age cognitive abilities can decline. Studies have shown that from age 60 onward the skills to make financial decisions decline, but our perception of our financial decision making ability does not. That creates a widening gap that those committing elder financial abuse exploit. A CPA firm can write-up your personal financial records and monitor them with periodic reports. This interim step may identify and prevent elder abuse or other costly mistakes. It can also lay the for that firm to take over bill paying if that should become advisable at a later date.

• Trust Administration: The cost of creating an informal accounting each year for a trust when the tax return is prepared may be modest. If a formal accounting is not being prepared, at least consider this lesser step. It will provide better and more understandable information to communicate to beneficiaries who are required to receive notice of trust information and it will preserve records that will make it much more economical to create a formal or court mandated accounting should that be necessary in the future.

• Federal Tax Law Changes: President Trump proposed the repeal of the estate tax. With the Republicans controlling the House and Senate this might in fact be a possibility but there is no certainty what will be done or the impact. If the estate tax is repealed will the gift tax be retained? Will a Canadian style capital gains tax on death be enacted to replace the estate tax if repealed?

• New Jersey Estate Tax Repeal: New Jersey’s estate tax exemption will increase from $675,000 to $2 million in 2017 and be repealed effective January 1, 2018. Articles in the media which suggest taxpayers need to do nothing are dangerously incorrect. While it is possible no action might suffice, the only way to understand the consequences to clients and their loved ones and heirs is to review the plan. Before canceling life insurance or changing the title to assets, talk to advisers. Wills, revocable trusts, insurance trusts, ownership of assets and much more could be effective. For those with smaller estates planning may well be less costly and simpler, but that does not suggest no planning will suffice. [use a state planning specific planning idea appropriate for your client base].

• New Fees and Billing Arrangements: All work and matters are subject to our new 2017 “Billing Arrangements,” and “Additional Engagement and Billing Terms.” This can inform clients of new billing rates, services, etc.

• Text Messages: It is not possible for the firm to maintain a record of text messages. You should assume any text message directed to personnel of this firm will not be received and will not be read. Some practitioners respond to text messages, many find it difficult. In particular, it may not be feasible to secure or save text messages so they will be part of the firms’ permanent document management system. Thus, you might wish to discourage these.

• Annual Review: Every client, entity, and trust requires an annual review to monitor changes in the law, changes in circumstances, annual consents and actions, operations, etc. Failure to participate in an annual meeting, and coordinate all advisers (estate planning attorney, corporate attorney, wealth manager, estate planner, insurance consultant, CPA, etc.), will undermine the planning objectives. Without regular review and maintenance few estate plans will succeed. Use a footer on a regular monthly bill to remind clients of the need to schedule an appointment.

Articles Enclosed with Monthly Billing

Your practice is likely sending out monthly client bills. Consider enclosing with each month’s bill a copy of an article a staff member has published, or if none are available, provide a short planning letter or checklist. This is another almost no-cost means of communicating valuable information. If you can earmark estate planning clients, or better yet, existing clients who could also prospectively become estate planning clients, enclose a short planning piece with each bill. This tactic is low tech, low cost, but effective. This is important since, as noted above, many older clients who are the target of estate planning and later life services are not as comfortable with email communications as other clients. Moreover, few prospective estate and later life planning clients understand the scope of valuable services an independent CPA firm can provide as they age. These regular “tidbits” can help demonstrate that.

Example: Most client powers of attorney include boilerplate gift provisions. Most were done when the estate tax exemption was much lower. Now that the exemption is so high, is there really any tax benefit to a gift provision? Might that gift provision serve as an opportunity for elder financial abuse? While CPAs are not going to prepare a new power of attorney, is anyone advising clients of this issue. There are many simple, practical but important issues that can lend themselves to this type of planning. It can be quite beneficial from a practice development perspective.

Calendar System

CPAs have robust calendaring capability to monitor compliance requirements. Those same abilities can be tweaked to provide valuable help to estate planning clients and to protect the practitioner from claims in the estate planning realm. Save covering emails into the client file to corroborate communications. Use the calendaring system to remind clients of the need for an annual estate planning meeting. Periodic meetings, even if done by a simple web conference to minimize costs (see below) are critical to keep any sophisticated estate plan on track. If a client has complex trusts, regular monitoring is necessary. Merely assuring that a periodic note or annuity payment is made is not sufficient. For other clients an annual or every other year meeting is necessary to assure the planning team is coordinated and to observe changes in the client’s circumstances or abilities. For aging clients regular meetings are vital to the client’s future security. If too many years pass between meetings the opportunities for the practitioner to observe a decline in physical and/or cognitive abilities and provide help may be lost. Those lost opportunities could mean the difference between the client becoming a victim of elder financial abuse or being saved from that tragedy. Periodic meetings may identify new services the client can benefit from. Has the time come for the CPA firm to take over bill paying? Use the calendar system to document efforts to communicate with clients and set up these periodic review meetings. For example, if a client cancels a meeting, do not delete that meeting entry from the calendar. Rather, mark it as “Cancelled by Client.” Perhaps minimize the calendar entry. Consider excluding historical calendar data from document destruction policies. Save calendar data indefinitely.

Example: Searching the client name in a case management system, or even Outlook, can provide a history of meetings and attempted meetings. Mark all client follow-up in the billing system even if as a no charge notation entry to create a history of efforts to communicate with the client.

Example: Administrative staff calling a client to schedule an update meeting should note the call in the billing system “No charge” there is a record of efforts to reach the client. These efforts can all serve as inexpensive practice development tools to garner more work from existing aging clients and help transform a mere 1040 client into a more robust later life planning client. If a child later challenges the CPA for not having helped his or her elderly parent take precautions, these records will demonstrate the efforts made.

Create Schematics of Client Plans

CPAs as a generalization are more adept at using Excel and other programs to create schematics. Few clients really understand the flow of their estate plan. As the sophistication of the plan grows, the likelihood of understanding declines. If the client’s estate planning attorney has not created simplified schematics showing the interrelationship of the many trusts, LLCs and other components of the plan, recommend the client permit the CPA firm to map out the plan. Not only might this demystify the plan, but it will help all the professionals the client works with do a better and more efficient job. Does the investment adviser really understand the nuances of asset location decisions if he or she is not clear on the various trust buckets, which are included in the estate and which are not, which are grantor trusts for income tax purposes, and which are complex trusts?

Use Inexpensive Technology to Boost Communications

While this might sound contradictory to the recommendations above, it is not. Practitioners should use the full array of technology that makes it easy and inexpensive to communicate information to clients and to corroborate that you have done so. An essential piece of information for any estate planning client is a family tree reflecting relationships. Practitioners should also gather email addresses for children, siblings, trustees and other key persons and have the client authorize them to be included in blast email communications. There is no cost to this effort, but informing family and other important people of later life and aging services the CPA firm can provide may well empower that person to be the catalyst to have the elderly client proceed with those services. Frequently, the adult child of an aging parent is the one who encourages the parent to undertake planning. Educating that adult child about the firm’s services may be more effective for practice development than all the direct communications to the client.

Email and Document Retention Policies

CPAs email retention and other policies should be reviewed in the context of estate planning needs, not just as part of an overall firm policy. Bear in mind that, whatever ethical rules or tech company recommendations may be, a challenge to a client’s dispositive scheme may not occur until decades later. The CPA, as the trusted adviser, may well have been intimately involved in the client’s decisions. Often, a long-time CPA has more involvement with these matters over a longer period of time, than the attorney who drafted the documents. Saving emails and file notes that might reflect on or corroborate the client’s wishes might be a vital service to provide the family. Practitioners should be sure these potentially vital communications are not deleted as part of a general document retention policy.

As part of such a policy, what happens to emails or work done at home or on a weekend? This might be a particular challenge for solo practitioners. One firm’s document retention policy includes the following statement: “For efficient identification, retrieval, and deletion of email and other electronic documents pursuant to this policy, attorneys and staff are required to organize and store all business record email and other electronic documents in separate folders designated for each client matter in the firm’s electronic document management system. No firm partner or staff member is permitted to store electronic business records anywhere other than the firm’s electronic document management system.” The key is to be certain all records are in fact saved into the firm system so they can be properly retained (or destroyed). This concern is one of the reasons for cautioning clients not to use text messaging to staff cell phones as a means of communication. It does not lend itself readily to being saved to the firm document management system. That point may warrant inclusion in the form engagement letter. As noted above, it can be added periodically to billing footers as a further reminder. Simply because a practice can legally destroy a file after some set number of years, e.g. six years for a tax filing statute of limitations, does not mean that it should be destroyed, especially in the estate planning context. One firm’s retention/destruction policy: “Unless otherwise specified by the Billing Partner, a destruction date equal to ten years from the date the matter is designated closed will be assigned to all files, with the following exceptions…estate plan, estate administration, files will be permanently retained."

Email Encryption

Confidentiality of client information is vital and many, perhaps most firms, now use portals that provide for encrypted emails, e.g. ShareFile, to transmit documentation with TINs, etc. This can be challenging, especially when practitioners collaborate with the client’s other advisers. Many financial institutions have firewalls that prevent access to the encrypted email portals CPAs use. What can be done in those instances? That does not mean firms should neglect the obvious. Take precautions to protect the physical office facilities, alarm systems, etc.


Collaboration might have been merely a footnote not too many years ago. Today it warrants prominent consideration and is an integral part of many estate planning practices. Estate planning is more complex and intricate considering changing demographics and what seems to be a permanent state of uncertainty as to the tax laws. A client intake form might include an authorization to be certain clients understand the importance of collaborative disclosures and provide the relevant contact at the outset of the engagement. The mere fact that the CPA estate planner has authorization to collaborate does not mean other advisers will do so. Other advisers may refuse to collaborate until they have authorization from the client. CPAs could prepare a letter from the client to all advisers authorizing and directing collaboration that the client can sign and distribute. For the aging client, CPAs may find themselves more routinely collaborating with more than just the client’s attorney and insurance consultant. Care managers, charitable giving officers and other experts might be involved to address the wide range of needs the aging client might have.

Collaborating with the Client’s Estate Planning Attorney

CPAs will often require input and information from the client’s estate planning attorney. Ideally, if collaboration occurs early in the process, while there is no issue of the client’s capacity, the client can authorize this communication. If this is not done, then facilitating the interactions will be more complex as the CPA may be constrained by the various ethical rules that might constrain the client’s attorney (this is all a good reason for regular review meetings as noted above). The attorney’s duty to represent does not end merely because of the client’s disability. See Model Rules of Professional Conduct 1.14(a). An attorney, as far as reasonably possible, is to maintain a normal client-lawyer relationship. An attorney can take protective actions depending on the circumstances. Model Rule 1.14(b). An attorney may reveal confidential information about the client when doing so to the extent reasonably necessary. Model Rule 1.14(c). This is generally limited to situations where the client is at risk for substantial physical, financial or other harm. Therefore, it may be advisable to authorize greater latitude in order for the attorney to take steps you might wish taken in less onerous circumstances.


Practitioners may balk at later life planning services viewing it as unprofitable bookkeeping work. That is a misunderstanding. While bookkeeping and bill paying may be involved, there is much more. The most valuable component of the services is not the routine or lower level bookkeeping or bill paying, most of which can be automated, but rather the monitoring and judgment of the experienced practitioner to “sniff out” potential elder abuse and other gaps that could lead to worse problems. The challenge is educating clients as to the importance and value of this work. Some tasks that had been billed on an hourly basis might now be billed on a flat fee or hybrid basis in order to be fair to the practitioner and reflect the value added. When rates or fee structures are changed, a footer could be incorporated on the bill explaining that an increase or other change has been put into effect. Many billing systems easily accommodate the addition of standard footers to some or all bills to facilitate such communication.

Technology Changes Client Vetting

Practitioners should take steps in advance of being retained. Some refer to these preliminary steps as “pre-engagement.” Turning away a bad case or client is important to the security, success and atmosphere of every firm. This is especially important in the estate planning space. Example, if the prospect has significant assets overseas what issues might this suggest with respect to reporting? Has the prospect complied with all the requisite reporting requirements? If the engagement involves the potential creation of Domestic Asset Protection Trusts (DAPTs) could providing assistance place the CPA at risk of being an aider and abettor to the client’s overly aggressive asset protection planning? It may be advisable to perform some due diligence on a prospective client before the prospect becomes an actual client. The internet has made it easy and, other than staff time, cost free. Have staff search the client’s names, and business names, prior to accepting the engagement. If issues are identified, address them before accepting the prospect as a client. If a prospective client searches raise worries, e.g. a physician prospect who has scores of negative complaints that sound substantive, perhaps the firm should consider whether that reputation risk is something it is willing to take on in the context of estate planning that typically will entail transferring assets into entities and irrevocable trusts. If the firm is willing to accept the client, it might choose to discuss these concerns up front as well as steps and costs of addressing them.


Technology is evolving and has and continues to change how CPA firms providing later life/aging and estate planning services should manage this component of their practices.

Martin M. Shenkman is the author of 35 books and 700 tax related articles. He has been quoted in The Wall Street Journal, Fortune, and The New York Times. He received his BS from the Wharton School of Pennsylvania, his MBA from the University of Michigan, and his law degree from Fordham University.

New IRS Collection Procedures

  • Written by Robert E. McKenzie, J.D.

McKenzie RobertThe IRS is now utilizing two menacing collection alternatives. First, the IRS is now assigning collection duties to private collection agencies which are compensated on a contingent fee basis. Second, taxpayers who owe delinquent taxes could lose their right to a United States passport.

Private Collection

If the IRS is bugging you about your unpaid taxes, what if it is a private debt collector collecting for the IRS? That is now a reality, since President Obama has signed the 5-year infrastructure spending Bill. It added private IRS collectors as part of H.R. 22 – Fixing America’s Surface Transportation Act, the “FAST Act.” What does a private IRS have to do with highway funding, you might ask? The answer is money.

Congress wants more of it collected from taxpayers, especially what the IRS considers to be hard to collect tax bills. In fact, for some hard to collect bills, the law now requires—rather than just permits—the IRS to use private collectors. Many people think that having the IRS farm out collection work to private contractors is a bad idea. Last year, National Taxpayer Advocate Nina Olson advocated against it in a letter. She said the 2006- 2009 program using private collectors didn’t even raise revenue.

The IRS has gone in for private collectors twice over the last 18 years. And although those programs were not especially successful, Congress has gone back to it in a big way. Congress included it in the FAST Act, and the President signed it into law. Here are nine things you should know:

1. First, the private collector usually will contact the taxpayer by letter.

2. If the taxpayer’s last known address is incorrect, the private collector searches for the correct address. Next, the private collector will telephone the taxpayer to request full payment.

3. If the taxpayer cannot pay in full right away, the private collector offers an installment deal for up to five years.

4. If the taxpayer is unable to pay even over five years, the collector asks for taxpayer financial information to see what sort of deal the taxpayer should get. There are controls on financial data, but there is considerable worry about having taxpayer data in private hands.

5. Private collectors cannot accept payments. Do not pay them directly!

6. The Fair Debt Collection Practices Act applies to private collectors. This is the same law that applies to collectors in other circumstances. Notify the collection agency that you refuse to deal with them and that it must cease further communications.

7. There are many reports required under the law. Congress and the Treasury Department are trying to determine if private collection is efficient and how well it works.

8. In some cases, the IRS is actually required to use private collectors, where:

• The tax bill is not being collected because of a lack of IRS resources or the IRS’ inability to locate the taxpayer.

• More than 1/3 of the statute of limitations has expired, and no IRS employee has been assigned to collect it; and

• The tax bill has been assigned for collection, but more than a year has passed without any interaction.

9. Some tax bills cannot go to private collectors, as where:

• There is a pending or active offer-in-compromise or installment agreement;

• It is an innocent spouse case;

• The taxpayer is deceased, under age 18, in a designated combat zone, or is a victim of identity theft;

• The taxpayer is under IRS audit, in litigation, criminal investigation, or levy; or

• The taxpayer has gone to IRS Appeals.

Revocation or Denial of Passports

The passport provision became official, when President Obama signed the 5-year infrastructure spending Bill. It added a new section 7345 to the Internal Revenue Code. It is part of H.R. 22 – Fixing America’s Surface Transportation Act, the “FAST Act.” The law says the State Department can revoke, deny or limit passports for anyone the IRS certifies as having a seriously delinquent tax debt in an amount in excess of $50,000.

IRC § 7345 authorizes the IRS to certify that to the State Department. The department generally will not issue or renew a passport to you after receiving certification from the IRS.

Upon receiving certification, the State Department may revoke your passport. If the department decides to revoke it, prior to revocation, the department may limit your passport to return travel to the U.S.

Certification Of Individuals With Seriously Delinquent Tax Debt

Seriously delinquent tax debt is an individual’s unpaid, legally enforceable federal tax debt totaling more than $50,000* (including interest and penalties) for which a:

• Notice of federal tax lien has been filed and all administrative remedies under IRC § 6320 have lapsed or been exhausted or;

• Levy has been issued.

Some tax debt is not included in determining seriously delinquent tax debt even if it meets the above criteria. It includes tax debt:

• Being paid in a timely manner under an installment agreement entered into with the IRS.

• Being paid in a timely manner under an offer in compromise accepted by the IRS or a settlement agreement entered into with the Justice Department.

• For which a collection due process hearing is timely requested in connection with a levy to collect the debt.

• For which collection has been suspended because a request for innocent spouse relief under IRC § 6015 has been made.

Before denying a passport, the State Department will hold your application for 90 days to allow you to:

• Resolve any erroneous certification issues.

• Make full payment of the tax debt.

• Enter into a satisfactory payment alternative with the IRS.

There is no grace period for resolving the debt before the State Department revokes a passport.

Taxpayer Notification - Notice CP 508C

The IRS is required to notify you in writing at the time the IRS certifies seriously delinquent tax debt to the State Department. The IRS is also required to notify you in writing at the time it reverses certification. The IRS will send written notice by regular mail to your last known address.

Reversal Of Certification - Notice CP 508R

The IRS will notify the State Department of the reversal of the certification when:

• The tax debt is fully satisfied or becomes legally unenforceable.

• The tax debt is no longer seriously delinquent.

• The certification is erroneous.

The IRS will provide notice as soon as practicable if the certification is erroneous. The IRS will provide notice within 30 days of the date the debt is fully satisfied, becomes legally unenforceable or ceases to be seriously delinquent tax debt.

A previously certified debt is no longer seriously delinquent when:

• You and the IRS enter into an installment agreement allowing you to pay the debt over time.

• The IRS accepts an offer in compromise to satisfy the debt. • The Justice Department enters into a settlement agreement to satisfy the debt.

• Collection is suspended because you request innocent spouse relief under IRC § 6015.

• You make a timely request for a collection due process hearing in connection with a levy to collect the debt.

The IRS will not reverse certification where a taxpayer requests a collection due process hearing or innocent spouse relief on a debt that is not the basis of the certification. Also, the IRS will not reverse the certification because the taxpayer pays the debt below $50,000.

Judicial Review Of Certification

If the IRS certified your debt to the State Department, you can file suit in the U.S. Tax Court or a U.S. District Court to have the court determine whether the certification is erroneous or the IRS failed to reverse the certification when it was required to do so. If the court determines the certification is erroneous or should be reversed, it can order reversal of the certification.

IRC § 7345 does not provide the court authority to release a lien or levy or award money damages in a suit to determine whether a certification is erroneous. You are not required to file an administrative claim or otherwise contact the IRS to resolve the erroneous certification issue before filing suit in the U.S. Tax Court or a U.S. District Court.

Payment Of Taxes

If you can’t pay the full amount you owe, you can make alternative payment arrangements such as an installment agreement or an offer in compromise and still keep your U.S. passport. If you disagree with the tax amount or the certification was made in error, you should contact the phone number listed on Notice CP 508C. If you’ve already paid the tax debt, send proof of that payment to the address on the Notice CP 508C. If you recently filed your tax return for the current year and expect a refund, the IRS will apply the refund to the debt and if the refund is sufficient to satisfy your seriously delinquent tax debt, the account is considered fully paid.

Passport Status

If you need to verify whether your U.S. passport has been cancelled or revoked, you should contact the State Department by calling the National Passport Information Center at 877-487-2778. If you need your U.S. passport to keep your job, once your seriously delinquent tax debt is certified, you must fully pay the balance, or make an alternative payment arrangement to keep your passport. Once you’ve resolved your tax problem with the IRS, the IRS will reverse the certification within 30 days of resolution of the issue.


If you’re leaving in a few days for international travel and need to resolve passport issues, you should call the phone number listed on Notice CP 508C. If you already have a U.S. passport, you can use your passport until you’re notified by the State Department that it’s taking action to revoke or limit your passport.

If the Secretary of State decides to revoke a passport, the Secretary of State, before making the revocation, may:

(a) Limit a previously issued passport only for return travel to the United States;


(b) Issue a limited passport that only permits return travel to the United States.

If your passport is cancelled or revoked, after you’re certified, you must resolve the tax debt by paying the debt in full, making alternative payment arrangements or showing that the certification is erroneous. The IRS will notify the State Department of the reversal of your certification within 30 days of the date the tax debt is resolved.

Robert E. McKenzie of the law firm of Arnstein & Lehr LLP of Chicago, Illinois, concentrates his practice in representation before the Internal Revenue Service and state tax agencies. He previously served as a member of the IRS Advisory Council (IRSAC) which is a group appointed by the IRS Commissioner from 2009 to 2011.

Breaking Developments in 1040 Tax Software

  • Written by T. Steel Rose, CPA

There have been many changes to 1040 tax software over the last year. In preparation for the 2018 tax season, are the latest developments.

Drake Software Offers Optional Hardware to Serve Remote Clients

Drake offers an optional digital signature pad to esign forms and bank applications. A 2D barcode scanner allows importing W-2s or K-1s with 2D barcodes. “Some of the more notable improvements we’re working on will make it easier for preparers to serve the remote client and provide a smooth appointment-free filing experience,” said Jamie Stiles, president of Drake Software. “Streamlining the process of securely transferring documents, communicating with the client, and completing return preparation, including signature and payment, are areas we are focusing on.”

Lacerte from Intuit ProConnect Offers Dual Monitor Support

“[With dual monitors], Lacerte users can speed up their workflow by eliminating the hassle of toggling between input and output screens,” said CeCe Morken, executive vice president and general manager, ProConnect Group of Intuit. “Users set up one monitor as the input screen and see the data flow on their second monitor to validate where it is represented on a tax form.” Lacerte provides automated calculations for depreciation, amortization and debt forgiveness. An optional form reviewer tool allows a CPA to check and edit data before importing. Clients can pay tax prep fees out of their refund. Another option is eSignature which includes a function to collect client payment at the same time. Other add-on options include the Lacerte Tax Analyzer and Lacerte Tax Planner.

ProSeries from Intuit ProConnect Has Fixed Asset Manager Import

“ProSeries’ most-requested feature allows customers to lock returns from being changed once filed, and open previous year returns without mistakenly changing them,” said CeCe Morken, executive vice president and general manager, ProConnect Group of Intuit. A missing client information tool solves tracking down client data by pinpointing input fields with missing information and then sending an email to request data from the client.

A K-1 data import feature transfers data to individual returns. Other features of the Professional version include Quick Entry Sheets, Split Married Filing Joint, Client Checklist, Client Specific Billing Options, Client Advisor with 71 Planning Suggestions, a Tax Planner, Task Scheduler, Client Snapshot and Import from QuickBooks, Quicken and TXF files.

TaxAct Professional Editions Have Additional Security Options

With TaxAct Professional CPAs can organize their client list with Client Manager and track and review what’s occurred within a client return. Professional Reports may be used to track the status of clients’ e-filed returns. There are client letter, invoice and mailing label templates and optional cloud networking. CPAs can backup client returns on TaxAct’s secure servers and save scanned documents with client returns in the Document Manager.

UltraTax CS Increases E-filing

For tax year 2017 Thomson Reuters announced “new electronic filing capabilities for at least 18 filings, spread across a number of states and localities, further limiting the number of returns which practitioners and their clients must file on paper,” UltraTax CS said Jordan Kleinsmith, manager for tax innovation for Thomson Reuters. With UltraTax CS professional tax software up to four separate monitors may be used to view input, forms, prior year input and diagnostics. The forms synchronize with one another, so as a CPA navigates to the Itemized Deduction entry, UltraTax CS navigates to show the Schedule A and last year’s Itemized Deductions entries.

CCH Axcess Tax and ProSystem fx Tax Implement IRS Fraud Prevention Initiatives

“As part of the IRS/ State Tax AgenciesPrivate Sector Industry Security Summit partnership we’ve implemented tax-payer and tax return preparer safeguards,” noted Jill Deems, product line manager, tax, Wolters Kluwer Tax & Accounting. Improvements for 1040 tax prep include: Jump to Supporting Statement – In Tax Forms view where users will be able to view “see statement” or an icon on any line that includes a statement. Additionally firms can now e-file Form 1040-NR, the U.S. Nonresident Alien Income Tax Return, according to Deems.