Legal

Protecting taxpayer confidentiality

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

By Bankrate

Protecting taxpayer confidentiality

Lawyers are held to higher standards than CPAs. Above, actor Bob Odenkirk, who stars as Saul Goodman in Better Call Saul, promised confidentiality to his client Walter White in Breaking Bad. Amanda Edwards/Getty Images

Fans of television’s favorite ethically challenged criminal lawyer Saul Goodman know that despite his many questionable actions, he definitely respects attorney-client privilege. He told Breaking Bad’s meth-making kingpin Walter White upon their first encounter, “Put a dollar in my pocket” to become a client and ensure that anything said between the two remained confidential.

Does the same apply to accountants? The question came up after the New York Times talked with Donald Trump’s apparently chatty former tax accountant.

Follow the (tax) code

Technically, accountants do not have the same legal constrictions, or protections depending on your point of view, as lawyers when it comes to client privacy.

But the Internal Revenue Code specifically says it is illegal to disclose a taxpayer’s information without that filer’s consent.

Section 7216 of the code says that as a general rule, any person who is “in the business of preparing, or providing services in connection with the preparation of, returns of the tax” is prohibited from “knowingly or recklessly” disclosing “any information furnished to him for, or in connection with, the preparation of any such return.”

Costly penalties for violations

That code section then notes that if a tax professional uses such taxpayer information “for any purpose other than to prepare, or assist in preparing, any such return,” that person has committed a federal misdemeanor and could, upon conviction, be fined as much as $1,000 or a receive a jail term of up to 1 year or both, plus court costs.

In addition to the criminal sanctions for improper disclosure of a person’s tax info cited in Section 7216, the U.S. Code also covers civil treatment of such releases in section 6713.

Under this section, improper use of tax info could bring a penalty of $250 for each such disclosure, with a maximum penalty per year of $10,000.

Specific CPA guidance

The American Institute of Certified Public Accountants, or AICPA, is the primary member association for the accounting profession. As such, it sets ethical standards for its members.

When asked about its member CPAs’ nondisclosure responsibilities to clients, the AICPA cites the U.S. code sections that address this issue.

The AICPA also has established its own ethical standards for the profession.

Its code of professional conduct specifically states that “a member in public practice shall not disclose any confidential client information without the specific consent of the client.”

Keep your mouth shut

Of course, such a stance does not, notes the AICPA, affect in any way an accountant’s obligation to comply with a validly issued and enforceable subpoena or applicable laws and government regulations.

But basically, when you share your tax information with an accountant and it’s all above board, you should expect that information to remain between just you and your accountant.

Or, as Amit Chandel, a CPA in Brea, California, told me: “We may not have attorney client privilege, but we have ethical standards to uphold and a fiduciary duty to keep our mouth shut most off the time.”

Are you comfortable sharing your tax details with your tax pro? Would you consider switching your tax preparation tasks to an attorney to get tighter client confidentiality coverage?

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.

Football and some fantasy sports games are back

By Bankrate

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

taxes-blog-fantasy-football-and-sports-games-are-back-getty-mst

The 2016 Summer Olympics are underway, but fans of American football — not the soccer being played in Rio — also are celebrating.

The National Football League kicks off its 2016 season this week with preseason games across the country.

That also means that fantasy sports leagues are shaping up. And there’s some good news for players of the daily fantasy games.

More states are saying the daily games are good to go within their borders.

Fantasy sports comeback

In 2015, daily fantasy sports, or DFS, came under fire from most states’ attorneys general. The states’ top legal officers generally contend that DFS represent illegal gambling, not games of skill as the fantasy sports operators argue.

In many states, the game companies stopped accepting players from those locations.

DraftKings and FanDuel, the two biggest DFS operations, took their cases to state legislatures and are seeing some success.

So far, 12 states — Colorado, Indiana, Kansas, Maryland, Massachusetts, Mississippi, Missouri, New York, Rhode Island, Tennessee, West Virginia and Virginia — have legalized daily fantasy sports. Legislation to do the same has been introduced in most of the other states across the country.

Those pending bills could pick up steam now that New York, the state that thrust the DFS-gambling controversy into the spotlight last year, has officially sanctioned the games. Before DraftKings and FanDuel pulled out of the Empire State, there were more New York daily fantasy players than in any other state, according to research firm Eilers & Krejcik Gaming.

Fantasy sports’ state payoff

Some lawmakers remain concerned about the cost of problem gambling. A 2011 Baylor University study found that each additional pathological gambler costs society more than $9,000 per year.

Anti-gambling groups argue that assembling virtual line-ups of athletes in order to win money on the fantasy teams is tantamount to gambling.

But other lawmakers see how popular sports and betting are with their constituents. Viewed from a cold, fiscal perspective, these legislators see how this convergence presents financial potential for their states.

Where DFS have been legalized, there is corresponding regulation. The states will issue permits and collect licensing fees from the operators.

Many state treasuries also will collect, or at least try to, taxes from the winners of DFS games. Like other gambling proceeds or prize winnings, the Internal Revenue Service and most state tax collectors view fantasy sports payouts as taxable income.

Given the state of many state budgets, look for fantasy sports to continue to make inroads.

Do you play fantasy sports? Has your participation been curtailed by your state? Most importantly, do you pay taxes on your winnings?

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.

Bill would make some forgiven student loans tax-free

By Bankrate

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

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Owing a debt you can’t repay is bad. Owing federal taxes on that debt amount even after you no longer have to pay it back is even worse.

Federal tax law, however, requires in most cases that when a loan is forgiven, the amount that is written off by the lender is taxable income to the previous debtor.

Sen. Debbie Stabenow, D-Michigan, thinks that’s wrong when the debt was incurred under fraudulent circumstances, specifically to pay for college. Stabenow has introduced the Student Tax Relief Act, a bill that would protect defrauded borrowers from being taxed on their forgiven student loans.

Corinthian College cause

Her bill, S. 3008, was drafted in the wake of the federal investigation into Corinthian Colleges, Inc. and its associated schools.

The Department of Education found that the now-defunct for-profit chain run by Corinthian defrauded students at more than 100 schools in more than 20 states across the country.

Following the fraud finding, the Education Department told students who borrowed money from Uncle Sam to attend Corinthian classes that they would not have to repay those loans. Affected students can apply for loan forgiveness through the department’s Federal Student Aid division.

That’s a welcome step for the bilked students. The Education Department says that as of March 1 it had processed almost 9,000 claims from former Corinthian students nationwide, totaling more than $132 million.

Canceled, but taxable, debt

The forgiven debt provisions of the Internal Revenue Code generally require that such canceled debt is taxable. For example, folks who are able to negotiate down or away debt owed on credit cards face the same tax due on what is called phantom income.

A notable exception is in the case of some residential foreclosures or mortgage renegotiations, where a special, temporary law allows certain home-related canceled debt amounts to be tax free.

The Corinthian students also were provided special tax relief on the amounts cleared by the Department of Education.

Stabenow’s bill, which has 7 Democratic cosponsors in the Senate, would give the same tax relief to students in similar educational fraud cases.

“When students take out loans to attend college, they should get a fair deal and a fair shot,” said Stabenow in announcing the introduction of the Student Tax Relief Act. “No student should be the victim of false advertising from a college that promises skills or job placement. And the last thing they deserve is to be hit with an enormous tax burden on their forgiven loans.”

Time running out

Stabenow’s bill might be able to garner some additional support. The issue of burdensome student debt in general already is under a spotlight, thanks in large part to Vermont Sen. Bernie Sanders’ campaign to be the Democratic nominee for president.

But time is not on the side of Stabenow’s effort. The tax-writing Senate Finance Committee, where the bill is pending, has not scheduled any hearing on S. 3008.

And with the upcoming November elections, the House and Senate aren’t going to be in session much. The chambers’ schedules are reduced so that Representatives and Senators can return home to make their reelection cases.

If, however, enough constituents let lawmakers know of their student debt concerns, both on a wider scale and in connection with cases like Corinthian, there might be some action on Stabenow’s bill this year. That would be a welcome development for former students facing an unexpected tax bill next filing season on their forgiven school loans.

Have you ever faced a tax bill on forgiven debt? Do you agree with Stabenow’s proposal? Do you think the tax code is right, or should all forgiven debt be tax-free?

Any U.S. tax advice contained in the body of this website is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.