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Roger Harris: Hello everyone. It's another federal Tax update podcast. Annie Schwab and Roger Harris back again for more talk. Annie, how's things going with you?

Annie Schwab: It's hot here in Texas. Roger and I, I hear that you've been on the road quite a bit, so, um, I'm sure you're, you're happy to be home for just a short period of time.

Roger Harris: Yeah. I just got back from Chicago with the IRS tax form, [00:00:30] and I'll share some information I got there. But the best thing about it was when I landed, it was 74 or 5 degrees.

Annie Schwab: Nice.

Roger Harris: And it was just nice to be outside, which you can't say in a lot of places.

Annie Schwab: Exactly.

Roger Harris: Around the country right now. But it's, you know, it's just it's summer. It is what it is. Life goes on and we just have to do be careful, uh, to some extent with the heat because at times it has been really, really bad out there, but it was good [00:01:00] to see some. We saw some people that listened to the podcast. I did well, anyone there. So I saw a few people listen to the podcast and recruited hopefully a few more listeners. But, um, it was good to see, good to see some people there. And we'll, we'll be at all of them. So we'll continue to spread the word.

Annie Schwab: I'll be at the one in New Orleans. So if you're attending the IRS forums, come find us. We'll have a booth. Um, we'd love to get some feedback or suggestions from you. So yeah, definitely come and find us.

Roger Harris: Yeah. And tentatively, since Annie is going to be in [00:01:30] the forum in New Orleans, I think we're going to do as we did. Was it last year we recorded.

Annie Schwab: Uh, last year we did, uh, podcast from the Forum in New Orleans actually.

Roger Harris: Yeah. So we're going to, we're going to try to do that again, don't know exactly who will be talking to, but there's no shortage of people when you attend one of the IRS tax forms. So that's on the plan. So we'll we'll do that. But today we're going to, you know, we're sitting here right in the middle of the year. And, you know, in our world, nothing ever ends or stops. There's always news. And you know, we [00:02:00] all and you know, we sit around and say, well, we got to put together stuff and you think, is there enough stuff? And you know what? There always is.

Annie Schwab: There always there seems to be, at least at this point.

Roger Harris: Um, yeah.

Annie Schwab: So yeah, it's sort of a mid-year tax roundup type type of thing today. A couple of new things, a couple of reminders. Um, and we'll just kind of tell you what, what's on our minds, what we're hearing from our franchise owners. And you're probably heard some of this stuff in the, at the forum.

Roger Harris: Um, yeah, there are some things that not exactly what we had in [00:02:30] mind, but some, some added information about it. But yeah, one of the big things, and I'll let you kick it off here, there's been a lot of stuff out recently about Trump accounts. So yeah, what's what's new now that we're in the summer about Trump accounts?

Annie Schwab: Well, it's, you know, the idea of the Trump accounts, no new news there. But as it relates to the reporting of how these Trump accounts are going to be tracked, so to say. There is now [00:03:00] a new box. Actually two new boxes on the 2026 1099 R um, the instructions are being updated, etc. but there's now a box C where you sort of mark the box that this is the Trump account and then box seven D, not that you need to remember all these codes, but those two boxes will report the earnings on the excess contributions. So basically keep a close eye on the instructions. There will be new boxes new codes [00:03:30] as it relates to the Trump accounts for distributions and for contributions. Um, and so they've sort of set the path for the 2026 reporting of this. And in, in doing that, um, there was some concern about how these contributions, you know, from grandma or from so and so were these going to be subject to gift tax? Um, I believe this was brought up not only by AICPA but but other practitioners wondering what is this going to mean? How are we going [00:04:00] to be tracking this? What are the interest? Let's even just talk about, you know, the original contribution goes in and then it grows. Is that interest going to be taxable. Is that interest going to be considered a gift? And so it was just last week that the Treasury came out and announced that the gift donations to the Trump accounts for for kids will not be subject to the year end gift tax reporting requirements.

Annie Schwab: So it's sort of like a new safe harbor. Um, and I'm glad that it was addressed this quickly because there were concerns about, [00:04:30] you know, how these were going to be taxable if taxable. And, um, as you can imagine, there have been a lot of these set up. Um, and in fact, if you now there are different ways to even set these up. So now like the Trump accounts, you can get on Apple store or Google play and, and open an account and verify your identity and the kids information and, and all these types of things. And so they've, they're definitely popular growing on the forefront [00:05:00] of sort of the IRS view. Um, they even announced, I think it was this week, you know, um, the initial like default investments that are going to happen for these. So they're, they're digging into it. Um, I think that would be the big takeaway is there's probably more to come. There's more ways to get access to these accounts of tracking it. Um, they've got some investment portfolio type defaults. Of course you could, you could alter those. And clearly there, there's the, they're [00:05:30] addressing how to treat this for, for gift tax purposes. So a little bit of an update there. Um, you can still sign up, you can still um, fund it. Um, none of those dates or amounts or form numbers have changed. It's, it's mainly just, you know, wrapping it up in a box with a pretty bow so that everybody's.

Roger Harris: Getting rid of that gift tax issue that they were concerned that.

Annie Schwab: Was concerning.

Roger Harris: And just the paperwork would have been maybe more than the value of the account. So thank [00:06:00] goodness. And like everything in Washington, I even heard the other day, politics creeped into the Trump account. Someone, obviously Democratic advised people not to set up Trump accounts because of Trump University, which I remember that came up in the campaign was as they described it was a sham. And so they were trying to tell everybody, Trump accounts are a sham. So if you put money in it, you were giving Trump the money, which, you know, so I don't know about all that. I don't, you know, but but the one interesting thing that came [00:06:30] up, which I thought was interesting is that right now, these things, you know, this is a three year life. Yeah. So what happens if you set all these accounts up and money's in it and then Congress doesn't extend it, which is political,so.

Annie Schwab: Of course.

Roger Harris: Yeah.

Annie Schwab: I mean, they called it a pilot when it first came out. Um, and so I guess we'll have to see if it takes off, if it lasts for three years, if it continues on or dies, who knows?

Roger Harris: Yeah. I think, you know, again, I keep the politics out of it. I think it's, you know, the idea [00:07:00] that the government's going to set up retirement accounts for young children, I think is a good idea. It teaches people the value of it. They earn earning. You know, I think it's a good idea. If we could just get the politics out of it, make sure it's done the right way. I do think there needs to be permanency added to it because, you know, are you going to set up an account and not know what happens three years from now? Yeah, and things like that. But it's it's great to start, you know, it's always good for all of us to start saving. So we'll see, but.

Annie Schwab: Yeah. So that's the update on, on the Trump accounts. Um, [00:07:30] we do have just a minor update, um, on IRC and we joke that we haven't done a podcast without using that word. Um, so just so that we have it in this podcast, um, there is sort of like this extension option for taxpayers who, have maybe a IRC claim that was denied. And so basically, taxpayers have to meet two requirements in order to request more time to resolve their claims. Um, the first one is that they, they [00:08:00] must be waiting for the IRS to consider their notice of disallowance so that those were those letters, those 105 C and 106 C letters that were going out by the IRS. The initial consideration of IRC, maybe it's asking for more questions, maybe it's been disallowed. Um, and then the second thing would be that you would have six months or less remaining before that two year period. So in general, you have two years to resolve [00:08:30] any sort of like claim or issue administratively. Um, and this is if you're within six months and you're waiting for, you know, something to be addressed by a disallowance, you can go ahead and file form 907, which would um, an agreement to extend the time to bring suit. Now finally, it doesn't give you that you have to actually hear back or be approved, but um, as we know, the whole processing of IRC claims was a nightmare. [00:09:00] And there are a lot of claims. Unfortunately, there are still claims waiting to be processed. Um, we get, I get questions periodically. You know, my client finally got their money, you know, like.

Roger Harris: What do I do now?

Annie Schwab: What do I do? I mean, this, this is like been years. Um, so in case you're running across that or you hear somebody like, oh, you know, it's not going to expire or I have more time. You do, there's a potential you do possibility you do. But we'll see. Hopefully, hopefully this backlog will, will [00:09:30] eventually dissipate. And, and we can call that an end to the IRC.

Roger Harris: But one of these days, one of these days, yeah, we will no longer have IRC to talk about.

Annie Schwab: I know what else you got, Roger.

Roger Harris: Well, interestingly, uh, you know, I'm, I think maybe certainly not as much as me, but falls into this bucket of being a big college sports fan. And the big thing that has happened in college sports has been name, image and likeness. [00:10:00] And I think all of us have seen it from the standpoint of how does it make our teams better? Do we get more better players, more players, all these sorts of things. Interestingly, last week there was a ways and means hearing on Nil, and there was also a session I sat in on at the tax forum. Mhm. On nil. Uh, those of you who don't know, Derek Ganter, who runs the stakeholder liaison at the IRS, has a son who's a college football athlete at Boise State, uh, [00:10:30] along with, uh, some other participants. It was really interesting to hear the hearing kind of pointed out the problem. Sam Acho, who's on see ESPN and you see him. He played.

Annie Schwab: He's an analyst I think.

Roger Harris: Right. Yeah he's an analyst right. He testified at the Ways and Means Hearing, which is a story that I think all of us, as we talked about this when it came up, it kind of highlighted what we were afraid of. Someone got NIL money, a player got NIL [00:11:00] money, bought his mother a house, bought him a car, sweet son, bought him a place to live and had $6,000 left over. Unfortunately, he owed over 200,000 in taxes and he he had no idea if this was taxable. And all the things that we've all talked about. And where does the guidance for these athletes come? So that was kind of the talk at the hearing, [00:11:30] you know, was what I think one good suggestion someone made is treat nil money like casinos, treat lottery winnings and withhold on it, you know.

Annie Schwab: Require some sort of mandatory percentage on it.

Roger Harris: Right? Which makes sense when you're dealing with a huge community where they probably haven't had to deal with this. What was really interesting about this hearing, and I apologize because I had a chance to tell Annie about this, was the the stories that we think of it as college athletes. It's [00:12:00] also can be performers and what they called influencers.

Annie Schwab: Mhm.

Roger Harris: Uh, that are also in this same world. And the first point that they made is there is no regulation about this. There is nothing you can find about this world that we have created. So we've created this big issue of how to tax and what's deductible and what entity should you be. And there's no guidance. There's nothing that you can find.

Annie Schwab: And, and I thought it was really interesting [00:12:30] that I read a quote and it was like, you know, the tax code wasn't written, you know, for a 17 year old college football player who suddenly, you know, gets $3 million or, you know, a freshman influencer who, you know, ends up with, you know, $500,000, you know, based on something that they do. And, and it's true. I mean, the tax code is one complicated. And two, you know, these are children. These are kids. Yeah. And you [00:13:00] could say, okay, well, the, the coach or the school or the parents, you know, somebody needs to advocate and help them. But, you know, a lot of times it's just, you know, it's not happening. Clearly, if we're here at this stage.

Roger Harris: And the presentation was guilty, was tilted towards, so you're a preparer. You could have the athlete or influencer come to you. You could have their agent come to you. You could have someone from the collective [00:13:30] that manages all this come to you. I mean, conceivably. So the first thing is you've got people involved in this from all different directions that have all different motivations. Uh, so you have to, first of all, identify who is your customer and what direction are they coming from. Again, there is no guidance. There is nothing there but some of it. And Derek said this, he told his son, you are now a business. You need to think that way. You are a business. You have to make a choice of entity. You have to pay estimated tax. We [00:14:00] have to determine what expenses are ordinary, necessary and deductible. And. And he jokingly said his son tried to fire him as his advisor 3 or 4 times because the other teammates weren't hearing this. And they were saying, well, they were, you know, like the San Mateo. Well, you don't have to do that. I bought a house, I did this, I did that. Um, but it's he said, if you're really going to get into this, if you have people come to you, if you had athletes, performers or influencers come to you, he said, the first thing you have [00:14:30] to do is you have to forget everything you know and get into the culture of how this operates.

Roger Harris: And dig deep into it to understand things that like. And I'm going to tell this story because I thought it was a great thing about how things that we think we know don't work in this world. And this was about an influencer more than an athlete. But, uh, the attorney, there's, there's court cases being heard. That's where we're going to probably get the first real guidance as to what the [00:15:00] rules are, is people are going to court. But he was talking about a young man. He was his name. Obviously, he shouldn't have. That works about four hours a day and reported net income of about a half $1 million as an influencer. Now, I don't know what that means. I guess that just means he's got a lot of people who follow him. And so one of the things was he gets a lot of free clothes. So the first thing we would all think of is free clothes [00:15:30] income. Now, Most things that we would think about. If I'm a business and somebody's giving me free merchandise, it would be income. Yeah, well, maybe it is, maybe it isn't. You know, in this world. Um, so he gets free merchandise, so he, he gets free clothes. So to help promote those clothes from the people who send it to him, he buys a courtside [00:16:00] seat for a Lakers game, which cost.

Annie Schwab: Now it's getting good. Now we're really getting into the nitty gritty.

Roger Harris: Cost about $20,000. Is that deductible? He then gets a picture with LeBron James while he's there wearing the clothes that's inside of it. He also went to concerts, paid exorbitant prices for seats at the concert, and deducted [00:16:30] the cost of the travel and the concert as a business expense. So. Would most of us think that any of that could possibly be deductible? I mean, you go to a concert.

Annie Schwab: Probably not. It seems pretty, uh, in my opinion, that seems pretty personal than business, but.

Roger Harris: A courtside seat to a Lakers game. Um, well, here's the part of the story that I didn't tell you. That why it's [00:17:00] in court is one thing about these are typically young people. They're savvy, they're, you know, and so they keep immaculate with the records that they have. So the way he makes money is by how many clicks he gets. So how many clicks do I get? And, and companies pay him based on his clicks. Mhm. So he can sit there and tell you like one of, one of his arguments was, well, you're just [00:17:30] going to concerts because you like concerts. No, I hate that man. I wouldn't have gone. I would never go to that concert if it were personal. I only went to generate clicks and he could actually produce records. That said, I took the clothes, I wore the clothes to the Laker game and my clicks went up. I can show you how many clicks I got because I was at the Lakers game. I can show you how many clicks I got to, uh, when I attended these concerts.

Annie Schwab: I mean, I [00:18:00] there's some bearing to that.

Roger Harris: Well, it changes the whole way you look at it when you get into this world, that it's not traditional to anything we've ever learned. And so we can't take everything we've learned for all these years and go that now the courts haven't ruled yet, but the IRS, we know what the IRS position was on all this. Of course, you can't deduct that. No way. You got to report the value of the clothes. You can't deduct going to a Laker game. You can't deduct going to deductions.

Annie Schwab: Right? That's exactly.

Roger Harris: So the [00:18:30] whole idea of what is an ordinary and necessary business expense to an influencer who gets paid for generating clicks, and by wearing the clothes and going to a Lakers game, the clicks go up.

Annie Schwab: So it's going to be interesting. It's going to be something to follow for sure.

Roger Harris: Yeah. And athletes are, you know, similar. I mean they don't you know they're not following clicks, but they're getting paid directly by the collectives. They're getting paid in some cases directly by the school. They're getting paid also by [00:19:00] companies to wear their clothes to go stand in front of their car dealership or whatever. Yeah. You know what?

Annie Schwab: Commercials, advertising, all of it.

Roger Harris: So kind of, and I had to leave the session a little early because I had to be somewhere. But they kind of said that if you're really going to get into this NIL world, you got to forget everything you learned and study about this world and watch court cases. And don't just come in hard saying, oh, of course not. You know, there's no way you can deduct a courtside [00:19:30] seat to a Laker game. That's ridiculous. Because maybe you can't. Uh, yeah. And well, so we'll have to watch court cases. But it's, it's, it's just amazing. You know, again, I always thought about court. I mean, NIL from whether my team got the best linebacker or not. But, you know, and, and I was always worried about the athletes. And the taxpayer advocate has written some good blogs on this and some good articles on this too. So I encourage you to go read them, you know, how did it impact my team? But I did worry about the stories like the one [00:20:00] Sam Acho told about the athletes not getting proper guidance and not realizing that these things were income, or not knowing what records they had to keep kept, didn't keep. Well, you know, go ask the offensive tackle for LSU what entity are type are you?

Annie Schwab: And yeah, I was about to say I mean I'm not those those terms may not even register, you know estimated tax payments, federal withholdings, you know things like that.

Roger Harris: It's fascinating and doesn't appear. It's going away. And and there's [00:20:30] going to be a lot of activity in this. But it's again, I guess the best thing I would tell you is don't assume anything. And if you really want to get into this, as they said, get into the culture of it. Don't get into the tax part of it without understanding the culture and how things work and the ins and outs of it. And again, it's going to be different if you're talking to the agent versus the athlete versus, you know, the IRS, certainly, and the collectives and all these things. Fascinating part of, you know, tax law [00:21:00] that, you know, kind of intersects my love of sports and tax. But I think I'm going to leave it up to because I would have been just like the IRS. You can't deduct that. What are you talking about?

Annie Schwab: Yeah. I don't think I'd have taken that that aggressive stance. But I'm curious to see how this unfolds because I don't, like you said, I don't think it's going away. It might have been around for a long time with athletes, but with, you know, influencers and, and all the new kind of technology and things out there. We're going to have to deal with this a lot more.

Roger Harris: But when clicks drive revenue, which I never thought [00:21:30] about it, but you know, if clicks drive revenue and these things you're doing help increase clicks, then you can make an argument that's an ordinary, necessary business expense, because I'd have fewer clicks if I didn't do I don't know, it's fascinating. Yeah, yeah. I also learned that there's a monthly what do they call it? Call where you can walk into the tax code. Any person can walk into the tax court on a one Friday a month and just sit in and listen to cases. Uh, so if you're ever [00:22:00] around a tax court and got nothing better to do, find out which of the day of the month and you can walk in there. So a lot of these cases, you can go actually listen to and hear the arguments. If you figure out what the calendar call for your tax court is and go sit in there and listen to the parties argue their case.

Annie Schwab: Yeah. Okay.

Roger Harris: So there you go. You got to be really bored, though, to want to sit in the tax court and listen to tax cuts.

Annie Schwab: Listen. Yeah.

Roger Harris: There you go. Well. All right.

Annie Schwab: Well that's.

Roger Harris: Interesting.

Annie Schwab: Well thanks for sharing that. And [00:22:30] I'm I'm not surprised. But I do find it interesting that it's this is part of a discussion at a tax conference at a tax forum. So, um, clearly it's, it's getting some headlines.

Roger Harris: Yeah. I don't know how many of those kinds of people come to firms like ours for tax help. I mean, you would think I know in the professional world agents provide those services through partnerships with, you know, big companies. I see a lot of golfers wearing logos for tax firms or accounting firms and things like that. [00:23:00] But you got to wonder with all the individual athletes where the agents aren't really as formal as they are in the NFL or Major League Baseball or whatever. Um, really interesting thoughts about this. And also while we're on sports.

Annie Schwab: What you got?

Roger Harris: Uh, I Heard the other day there was an article about the Super Bowl last year that because states tax athletes when they perform. Yeah. That there were certain players that played in the Super Bowl who lost money, [00:23:30] that they owed more in tax than they got for winning the Super Bowl.

Annie Schwab: Oh.

Roger Harris: So, um, and then I heard yesterday that the federal government is telling all the World Cup athletes that they're going to have to pay U.S. taxes for the money they earned while they were here on the.

Annie Schwab: I did see something about that. I don't know where I read it. I don't know if it was, I don't know, but I read it and I was like, well, that's interesting. Um.

Roger Harris: And I think we need to start a tax firm that specializes [00:24:00] in sports and we'll write off every game we go to.

Annie Schwab: And then we'll just go to all the games, all the games. There was a soccer game just down the way from me. And and I thought about it. My my kids play soccer. And I thought about it. And I went and looked and like the cheapest ticket, like the worst seat or whatever It was like $2,300. And I'm like, sorry, kiddos. We'll be watching it from the couch.

Roger Harris: Well, I think we'd be really good at coming up with the deductions. We got to figure out how to make somebody pay us to do this.

Annie Schwab: Yeah, I know. [00:24:30] I like this idea. We need to. We need to dig into that.

Roger Harris: All right. I'll get off of my soapbox about.

Annie Schwab: Let's see what else we have here today. Um, there are some that actually came out. It was today or yesterday, um, about the, uh, penalty relief, like this new program that's going to replace the first time abatement, um, process. So did you hear about this at the forum too?

Roger Harris: Uh, no. Well, again, I had to leave early. The forum is actually going on as we're sitting [00:25:00] here, so I don't there may have been sessions on it, but yeah, they're basically going to I'll oversimplify that. Any comment on it basically applied automatically if you qualify.

Annie Schwab: Yep.

Roger Harris: Which sounds good. And it is good in some instances, but we'll talk about it. But so short version is it's automatically applied. And you can talk about what what it means when it's applicable to be applied.

Annie Schwab: Yeah.

Roger Harris: So instead of us having to ask for it, they're just going to give it to you.

Annie Schwab: They're starting [00:25:30] with returns for tax years 2025 and 2026 quarterly returns. So and then obviously they'll go into the future. But what it's basically doing is, you know, if you're in good standing, if you if you've been filing on time, you don't have outstanding issues, notices, uh, balances do, etc., they're basically saying, okay, you know, instead of you having to fill out the form, get with your tax practitioner, send it in, the IRS has to handle the form and create the response letter [00:26:00] and then, you know, wave the stuff. I mean, it's like, you know, this administrative not nightmare, but it does require time and energy. Um, they're basically saying, hey, going forward, we're just going to automatically provide relief for those who who meet the qualifications of a taxpayer in good standing. Um, and then they would, they would go ahead and waive it. So I think it's a good move. It's called um there's an automatic exemption from penalties. So they're calling [00:26:30] it the a P program. Um I like it. I think, you know, if you're going to grant these first time abatements anyway, you can determine if the client taxpayer qualifies and just apply it so that the back and forth with the notices and the handwritten requests and, you know, all that kind of stuff can just go to the wayside. So I don't know. It says starting this summer with the with the 2025 tax year returns and then the 26 Quarterlies. So we'll see. It'll be interesting to to see how [00:27:00] that works.

Roger Harris: But yeah, I don't know if anything is actually done yet. I mean, you got to be and I want to clarify, I'm going to speak to this because I don't want to throw the one kink into it is basically it means that for the prior three years, you were clean. That's kind of what it is.

Annie Schwab: That's what in good standing that would be eligible. That would mean you were eligible.

Roger Harris: So if they look back and you were clean for the past three years, and it's not all penalties, it's the same penalties that the penalty, you know, the first time abatement always applied to it's not all of them. The judge is going to say, oh hell, we'll send you a notice [00:27:30] and tell you we applied it and you're good to go. Which the Taxpayer Advocate has asked for. A lot of people have asked, why do I have to go through this problem to get something that's automatic? And in the article today, the Taxpayer Advocate pointed out, there is still one issue that is not addressed. Is that because you have to have a clean, I'll use a soccer term clean sheet for three years before. Let's say that what created the penalty was something that would have qualified for the [00:28:00] reasonable cause abatement. Well, in essence, you can only do this if every three years in essence, because you got to be clean for the three per year. So if they apply the first time abatement to it and you had a reasonable cause. You've kind of got it backwards. You would have preferred to use the reasonable.

Annie Schwab: Cost.

Roger Harris: And keep your abatement, because then you've still got time. You've still got available. Well, if they apply this automatically, I don't. The article I read today, and I take it from the comments of the Taxpayer Advocate that it wasn't addressed, is [00:28:30] what if that reason that I got the penalty in the first place was something that would have qualified under reasonable cause? How can I now insert that into the process so I protect this abatement, you know, for something in the future?

Annie Schwab: Yeah, I don't yeah, I don't know how because if they're going to do it automatically, I don't know how you would say, hey, no, I don't, I don't want it.

Roger Harris: I don't want that. Yeah.

Annie Schwab: Um, I prefer to use that. So. Well, I'm glad that they [00:29:00] brought it up. Hopefully it'll be addressed.

Roger Harris: I think because that's always been kind of the well not so much in the automatic. But there's always been this You know, they say, well, you know, the IRS says, well, just use your first time penalty abatement. And people say, no, I don't want to use it now. I want to keep that. I want to save it. So that's been a discussion for years that, you know, don't make me use something that I don't have to use. If there's an alternative way to get the penalty abated, because I want to keep this in my arsenal here. So it's always been a discussion [00:29:30] now that they're doing it automatically, the question is, is it going to just kind of say, well, tough. You know, this is what we're doing. And so we'll have to watch it. It literally I read the article this morning. Uh, so I don't know. I did not hear again, it may have come up at the forums after I left, but I did not hear a lot about it before then. So we'll see. But again, it's, it's 99% of this is good. You know.

Annie Schwab: It's a little tweaking, a little clarification and we'll be good to go.

Roger Harris: Yeah. So we'll [00:30:00] see. But there you go. So you're going to get automatic penalty relief.

Annie Schwab: That's right. I'll take it.

Roger Harris: Yeah.

Annie Schwab: Um. All right. Just a few things on the tax on the online accounts. So, um, there was some clarification. I've recently read a couple of articles, just not only promoting it, but sort of explaining like, what are the differences between all of these types of things? Um, and so the tax pro account that has some has advantages for sure. Um, it [00:30:30] allows the tax professional to access the client's individual information and act on their behalf. So assuming that you have, um, you're qualified to do so, you can act on their behalf. So this is easier, much easier way to do like power of attorney, um, or that tax authorization kind of form that you can do online. So, um, you know, reducing the amount of time it takes and like the pain in the butt process of faxing it or [00:31:00] mailing it, etc.. So having a tax pro account, I mean, it's free, it's not difficult to set up, and it allows you to access the calf system. So that's the centralized authorization file number. So you can use that to access the account. And you can set up payments. You can read notices. You can, you know look at taxpayer information. And so if you're out there and you've been wondering, you know, benefits, is this [00:31:30] risky to have an online account? What should I do it? Should I not do it? How difficult is it to set it up? There's a, there is a big push encouraging tax professionals to go ahead and set up a tax pro account. Um I'm sure this is being promoted at the at the IRS forums because I mean it's beneficial to the taxpayer, the tax practitioner and to the IRS. So there's really no reason not to in my opinion.

Roger Harris: No. I think whether you like it or not.

Annie Schwab: Yeah. [00:32:00]

Roger Harris: The IRS is pushing everything To online accounts. We're not talking about it today because we're recording this on July the 9th, and the deadline is July the 10th tomorrow. Right. So by the time you listen to this, it's too late. But they offered the ability to e-file some. 843 provided you had an online account.

Annie Schwab: So yeah, but those are in the individual accounts. So the tax, the tax pro can't file those through their tax pro right. But it's just another it's just another push another instance [00:32:30] of going in this direction of encouraging, you know, individuals to have accounts. The business accounts have been around for a short period of time, but they keep enhancing them.

Roger Harris: They're gonna make them better because they want everything to go through one of these three accounts, the tax pro, the business or the individual.

Annie Schwab: Exactly. Um, and you know, there's been notable concerns about the struggle with ID me, I, you know, I feel like they're perfecting that. And I think it's going to be something that, okay, you're going to have to go through them once [00:33:00] you go through it, you don't have to worry about it again. And now you have all this ability to access personal business. And and if you're a tax professional, your clients accounts. I think I think it is a game changer. I think I use that term when the individual accounts came out and I've been I've been happily surprised with the enhancements on the business. One, two. Um, so.

Roger Harris: Yeah, online individuals are better because they came out first.

Annie Schwab: Yeah. It's been around longer and [00:33:30] they've, you know, have the have more things. Plus individuals are a lot easier because it's you versus if you're an S corp, let's say you're an S corp with ten shareholders. You know, there's some there's some considerations there about who can see what and who's got the ability or the authorization to do so.

Roger Harris: But yeah, one, yeah, one of the interesting things, particularly in the online accounts, you mentioned ID me that's, that's kind of caught on in the tax professional community is one of two things [00:34:00] Offering, setting up people's online accounts as a service. In other words, come to my office. We'll walk you through the ID setup and we'll go through it. And you know that you know, that way you'll get the account and then I can get access to it through, you know, authorization form and it'll make my life easier. Some are doing it for nothing. I've heard a couple of people just set up in their office, a computer in the waiting room.

Annie Schwab: And oh, interesting.

Roger Harris: When you come for your appointment, there's a staff person there that says, if you don't have an online account, why are you waiting for your appointment? [00:34:30] Let me help you set up your online account because at the end of the day, you're going to need one and it's going to make all. So I think if we're smart, we can help our clients work around something that inevitably is going to almost help it. It may even be a requirement sometime in the future that you know.

Annie Schwab: Yeah, yeah, yeah. I mean, we saw, you know, all the issues with the paper checks, um, this past filing season and, and now, you know, the notices have gone out and [00:35:00] people's refunds were delayed, and they encourage people to go, you know, log into your online account and enter your your direct deposit information or your banking information. Um, so I mean, there's definitely going to be a time where, you know, this is the norm. In fact, I'm, I am still seeing, um, complaints, I guess, of, of these random notices, the CPE 53 notices going out about accounts, banking account information for refunds, [00:35:30] and you know, what to do here or there. And I know AICPA has been pretty vocal about it, but hope hopefully by next tax season. I mean, I understand the idea. I think it was probably a little rushed and the implementation could have been a little bit better. I know there were software companies that were like, if you don't want to do direct deposit, click this box. Well, that wasn't going anywhere. No, that wasn't really notifying anybody. Um, so there was some confusion, but I think, you know, online accounts. No more paper checks. All of that stuff is [00:36:00] the direction of the future.

Roger Harris: So yeah, I mean, everything is going to be if you listen to the CEO, he's talking about digitizing and everything being digital and everything moving into an electronic world and getting away from any kind of paper, whether it's checks, you know, we've we've pretty much eliminated paper filing of tax returns.

Annie Schwab: Yeah. I mean, there's always going to be those if you meet an exception, um, you know, type of thing. But I mean, yeah, e-filing is, I mean, definitely FTX for estimated tax payments, [00:36:30] you know, being able to pay through online accounts. Um, all of that is, I think that's the easiest, safest way to do it.

Roger Harris: And, and I'll go back long enough to remember when e-filing first was being introduced, it was controversial, you know, oh, it's too hard. It's too complicated. My clients won't like it, this and that sort of stuff. Well, think about it now. It's just it's just the way we do business.

Annie Schwab: People used to charge to e-file, and now I think people charge the paper file.

Roger Harris: Exactly.

Annie Schwab: You know.

Roger Harris: Well, the argument used to [00:37:00] be, well, my people want to work on the float off of their mailing their checks, so they're not going to file the return and let them take it from the bank account. Or the funny one was, I don't want them to have my bank account. Well guess what? When you mail them a check, guess what they have.

Annie Schwab: Yeah. Yeah.

Roger Harris: But, but it was the same kinds of oh, we're not going to. This will never work. This is bad. Well, again, think about it. Everybody files electronically. So we're going to get to the point. And they can never you know even with [00:37:30] e-filing there are exceptions that qualify that you don't have to file it. But, you know, we're getting close to the point that they're just going to say, you have to go here to do it. You have to go there to do it. And if you can't, that's kind of, you know, I don't know if it was anticipated to be as bad as it was, but kind of the message that was sent with these notices about paper checks. If you could go to your online account, it worked pretty quick, but if you didn't, you're going to pay a price. You're going to take longer.

Annie Schwab: Wait.

Roger Harris: So you know, they don't they may not mandate it, but they can make it miserable. So again, [00:38:00] be creative. Find a way to help your clients get get your account tax pro account, obviously, and then help your businesses and individuals set up online accounts because it's it's coming guys and ladies, there's, there's no sense to fight it.

Annie Schwab: Okay, two more topics I want to touch on today. Both, um, are, are important. Both, we may have touched on briefly in the past. The first one is on the taxpayers requirement to have a succession plan. Um, this kind [00:38:30] of falls into the whole circular. 230 um regulations governing, you know, the practice before the IRS is circular. 230 um but there was not anything specific previously in there about succession planning. And it's important for, for all involved, obviously the practitioner, the clients, the firm, the family, um, having some sort of succession plan in place. And so the IRS is has come out and has made some recommendations [00:39:00] that practitioners incorporate best business practices, so to say, as it associates to succession planning. So, Roger, I know it's very lengthy. Um, there's all kinds of points in there, but, you know, if there are a couple that we wanted to drive home today, um, would there be one that you would really want to touch on?

Roger Harris: Yeah, I think the big thing, because I think, well, first of all, I think we have to realize that in the tax preparation community, we are an aging group of [00:39:30] people. And I think the service is recognizing that what's going to happen if something happens to all these people, and of course, they're looking at it to protect the taxpayers.

Annie Schwab: Of course.

Roger Harris: More than they're concerned about us. But the key point is building a relationship with another practitioner, having, um, they gave it a name I forgot. Um affiliated or associated practitioner or something.

Annie Schwab: But yeah, yeah, yeah, yeah, like some sort of agreement in writing a clear policy [00:40:00] in writing that between these two practitioners. So a business continued continually plan.

Roger Harris: Yeah. So what happens if something because we've seen it inside a pageant, you know, where you wake up one day and the, the owner of the firm or the primary tax preparer, whatever the case may be, has become incapacitated or worse, passed away. And now you have all these clients with the [00:40:30] expectation that where are their records? What's the status of their tax return, whatever the case may be. And suddenly there's nobody that can help them.

Annie Schwab: Yeah.

Roger Harris: And, uh, the IRS has said, you know, we, we owe it to our clients. And I tend to agree with them to have some sort of plan by which there is someone else who can step in. And I don't.

Annie Schwab: Take over the practice or at least for a short period of time. Keep it going.

Roger Harris: And make sure the taxpayers can meet [00:41:00] their legal obligation to file a tax return. Uh, you know, because if I've got all the records that you gave me, and something happens to me and nobody can get in my office or knows where those records are, what's that poor taxpayer supposed to do? Because they gotta file by April 15th. You know, there's no place on the form that I've ever seen that says couldn't file taxpayers tax pros gone or whatever.

Annie Schwab: Yeah.

Annie Schwab: So they they're not here. All [00:41:30] my files are in their office. The door's locked. I can't get it right.

Roger Harris: Yeah so.

Annie Schwab: And I think I mean, it's smart for the tax practitioners family, the clients, the firm, the employees at the firm. Um, I mean, it really benefits everyone. I'm surprised it actually hasn't been addressed sooner than now.

Roger Harris: Yeah, I think we've kind of all known it, but it was an uncomfortable. And what is the solution? Because you've got disclosure of data, information that you've got to deal with. When can you.

Roger Harris: Disclose it? When can you not? [00:42:00]

Roger Harris: What if you're out there by yourself? Do you want to share? How much information do you want? Are you comfortable sharing with your. Yeah, because I mean, it sounds cruel, but if something happens to me, I don't really care about my clients anymore because I'm gone. But the IRS has to look at the taxpayers, you know, and their situation. So it's not a rule. There's nothing they can it's it's they're calling part of their best practices, best practice.

Annie Schwab: Yeah.

Roger Harris: Circular 230. But I, you know, you know, you know, part of me wants to say it almost [00:42:30] should be a rule that taxpayers, because we've had situations where we've had franchisees and pageant, something happened to them and they've called us, you know, and ask us for help. Well, you know, unless we have something like this in place, which we try to have.

Annie Schwab: Right?

Roger Harris: You know, where would they who would they call if we weren't around to, to get them the information that they need? I mean, this could be something as simple as I need a depreciation schedule. You know, that's not part.

Roger Harris: Of a tax return.

Roger Harris: Even going to the IRS to get a copy of the tax return, you're not going to get a detailed [00:43:00] depreciation schedule with that. And so I mean it's to me there's nothing controversial about it in the sense that it's a good business practice. So I think all of our listeners here should follow it. And you owe it to you. It also may be what keeps your practice viable until a buyer can be found.

Annie Schwab: I was just about to say that.

Roger Harris: Yeah.

Roger Harris: So there's a lot of money could be involved in this.

Annie Schwab: Yeah. Yeah.

Annie Schwab: More to [00:43:30] come on that probably. Um. But we'll see. Um, and then the, the second topic I mentioned, there are two things I wanted to make sure we got to today. And the second one is also related to circular 230. But that's related to the AI guidance. Um, and so practitioners, you know, obviously need to exercise due diligence and competence, but their OPR actually is like summarizing how this would apply to practitioners who are using AI. Um, I, I [00:44:00] don't think this is going anywhere. I mean, if you're ignoring how AI is going to affect your tax practice, you probably need to reconsider. Um, because it's, it's rapidly enhancing. Um, and there's a lot of benefits to it, but with, with this tool, with this, you know, all the AI programs out there, um, there are risks. Um, and there should be protocols set in place because as you know, like, as tax practitioners, we have very sensitive data. We have, you [00:44:30] know, we have to take care of what we're given from the client and make sure that it doesn't end up somewhere on, you know, on the world Wide Web or whatever. Um, so OPR came out and summarized again, best practices for practitioners and I.

Annie Schwab: And I'll mention a few and then I'll let you comment. Roger. I mean, there's obviously, um, there needs to be some way of identifying and staying current on these, the federal and state. And you can't just take whatever AI gives you as [00:45:00] accurate, um, some sort of verification purpose, you know, way method theology in, in making sure that what you're getting that you double check it or you verify it. Um, and so as that comes, um, you know, there are going to be some programs that have better security or better access to more accurate information. There are some that are free, there are some that you pay [00:45:30] for, there are some that only go into certain vault of information, so to say. So like the regs, the guides, you know, all the research tools and then some that just pull things off off the web based on other people's searches, other people's, um, inquiries. So having, you know, knowing what you're using, knowing whether what resources they're pulling from, and then also security for that, for that data. Um, what else [00:46:00] am I missing? Roger.

Roger Harris: Well, I think you've just a couple other comments on it. First of all, AI is coming, you know. Well, in fact, it's here. I mean, we use it. We use it sometimes knowingly and sometimes not knowingly already. Um, but you have to be careful because it doesn't it, it can't give you the right answer if it doesn't have the right information. And sometimes it's very critical how you ask it a question or how you pose [00:46:30] your question. And the answer is going to look great, except for the fact that, well, I didn't tell it this.

Roger Harris: So.

Annie Schwab: Yeah.

Roger Harris: You know, you can't rely on it completely. It's not going to be considered, you know, uh, guidance or formal.

Annie Schwab: You need to do some vetting.

Roger Harris: yeah.

Roger Harris: So it's coming and it's coming probably faster than we would all like it. We'd like it to slow down and it's going to have different impacts on us. This is talking primarily about using it for [00:47:00] helping prepare tax returns, you know, in terms of research and things like that.

Annie Schwab: But for the treatment of a certain transaction, those kinds of things.

Roger Harris: Yeah. But it's already helping actually prepare the return you know, so, uh, but again, how does it know charitable donations? There's no record anywhere of a charitable donation anywhere. So they're still going to be a role that will have to play. But I think we have to accept the fact that AI is coming. It's going to dramatically change how we work. It's going to change how we [00:47:30] have to, the skills we have to have and other things. But in this specific guidance, I think what the service is worried about is relying on AI as trying to say it's authoritative in some way.

Roger Harris: To taking a position, and that's just not the case. And and then the understanding, you know, if you put client data in it, where does it go?

Roger Harris: You know,

Annie Schwab: Is it is it secure?

Roger Harris: Because a lot of AI is built by capturing data from anywhere they can find [00:48:00] it.

Annie Schwab: Yep.

Roger Harris: And the service is saying, well, you really can't do that, you know.

Annie Schwab: Yeah.

Roger Harris: So.Um.

Annie Schwab: Absolutely.

Roger Harris: It's it's going to be the guidance I thought is probably accurate. There's only one part of it that I really.

Roger Harris: Objected to. They also said that, you know, you can't charge unconscionable fees. So if AI saves you all this money, you should reduce your fee. Well, I don't think it's that simple. [00:48:30] First of all, I mean, it's a tool. And if I'm if what you're saying is if I can get to an answer faster, I'm not worth the same amount of money. Well, that doesn't work. If you go to a lawyer with 30 years of experience, who knows how to solve a problem quicker. Their hourly rate goes up. It doesn't go down because faster.

Annie Schwab: The expertise. Right.

Roger Harris: So I think I'm a I don't really think that part of the guidance was well thought out. And we didn't have any of this when we first got [00:49:00] computers or tax software or things like that, because all that was saving us time too. Nobody said, well, now that you have.

Roger Harris: Tax software you shouldn't charge as much. I get it. Maybe they have to say it because, you know, if it really is a question you can solve in five minutes, you can't act like you it's worth $1 million. But again, I'm not too worried about most tax people charging unconscionable fees.

Annie Schwab: Yeah, I'm not either.

Roger Harris: I don't even know what that would be. Uh, and, but I'm not going to necessarily drop [00:49:30] my fees because I now have an a J. Ai product or use blue J or something like that to help me do research. It's like, well, that doesn't make me cheaper. In fact, it might make me more expensive actually, because I'm better. Yeah. Yeah. So that part I'm, I'm not in favor of the rest of it. I'm, I'm fine with I think it's yeah. You know, and.

Annie Schwab: Again, it's not set in stone yet. These are recommendations for best practices. I think we'll see more on this. Um and probably [00:50:00] in other aspects too as, as AI continues to expand and grow.

Roger Harris: So yeah.

Annie Schwab: Keep an eye on it.

Roger Harris: Yep.

Annie Schwab: Well, that's.

Roger Harris: What.

Annie Schwab: I had. Roger.

Roger Harris: That's all we got. It's we're hitting some you know, it's just amazing to me. We're in the middle of summer and there's stuff like this going on and there's still, there's a little stuff going on in Washington. I don't think much is going to come, though. I am going to go to some meetings. There's there's some some activity on minimum standards for tax return preparers, which I think is a good, good [00:50:30] idea because, you know, we're becoming kind of the final line of defense between our clients and the because the IRS doesn't have the resources, the capabilities to do much enforcement. So if they get by us, they pretty much got a free ride after that.

Annie Schwab: And that's, that's one way to put it.

Roger Harris: Yeah. And, um, and half of us don't have any credentials or any responsibility. So there's some activity. I think Congress is beginning to take a serious look at. Do we need to do something because [00:51:00] over half the returns are prepared by people without any designation. So they have no requirement to take CE.

Annie Schwab: They know nothing.

Roger Harris: Nothing, nothing. So um, but other than that, it's an election year as we all know. So I don't know that we'll get much of anything interesting. Yeah. So yeah, I don't have much else. I'm just happy to be at home for a couple of days.

Annie Schwab: Well, yes, make sure you're resting up and good luck with all the IRS forms. Obviously. See you at the New Orleans one. Yeah. But hopefully they. Hopefully [00:51:30] attendance will be great. The presentations will be great. A lot of feedback. I know there's a lot of work that goes into these so.

Roger Harris: And they are good. Like I said, I didn't get I didn't spend the entire time there, but there's some great sessions. So if you still are considering it, there's, there's sessions all the way out to September, uh, in, uh, San Diego. So if you're on the fence, I would suggest you go. There's, there's a lot of good topics there. It's a good place. You also get to spend some time. The instructors are sometimes from our community [00:52:00] and sometimes from the IRS. Yeah. There's a lot of.

Annie Schwab: Good networking, good socializing with other tax practitioners. Um, and the, you know, there's usually a full room of vendors and sponsors or.

Roger Harris: There's a lot, it's a huge exhibit hall area. Yeah. And like we said, we had John Lippold on, uh, while you were on sabbatical talking about the IRS forums. And there's case resolution rooms, you can actually take a case to the IRS.

Annie Schwab: And I thought that was interesting.

Roger Harris: Get it resolved. Their taxpayer advocate and their [00:52:30] team are there for cases. So it's just a good and it's for the money. I think it's a great investment. So come by and see us come come to New Orleans, see an. And I record a podcast. You might even get to be live on our podcast.

Annie Schwab: Yeah for sure. Well thanks Roger. This was great. I'm glad we we made it through all the, the bullet points we had. So, um, I'll let you just wrap us up.

Roger Harris: Well, thank you Annie, as always, Annie is the backbone to this thing. I just show up and, uh, she does all the hard work, so I really appreciate [00:53:00] her doing that. Appreciate you listening. Uh, hope you have a wonderful summer. Stay cool, enjoy your hopefully family time together, and hopefully we'll have you back in a couple of weeks for another Federal Tax Update podcast. So thanks everyone. We'll be back in a couple of weeks.