can your reviewers answer these 10 questions?

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by ed mendlowitz
tax season opportunity guide

the primary people who should review tax returns are trained tax department reviewers. however, often the bunching and compression of work shifts some of the review to higher level, non-tax personnel such as audit managers and partners who might not necessarily have the comprehensive training, background and experience to handle everything that might come up during the tax preparation process.

more: what makes a good tax season client? | do your clients feel important? | 5 small leaks that can sink a tax season | 5 tax review keys | 4 reasons to push ahead with tax question research | one can’t-skip touch for tax season | 5 steps for tax season success | help tax clients help you | 3 steps to tax season happiness
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additionally, in many firms, almost everyone on the staff prepares some returns. that lack of dedicated preparers with the trained skills places an added burden on the tax reviewers, making it important for them to have the range of experience needed to perform the review.following are 10 questions reviewers should be able to answer to qualify for their role.

note: whether or not you agree with the questions below, you have to consider a method for making sure reviewers are qualified. doing so should also include reviewer-appropriate cpe and in-house training.

  1. what is the latest date a simplified employer pension (sep) plan can be opened for a sole proprietor?
  2. what date is used as the “date purchased” to report a stock transaction that includes an unallowed loss because there was a previous wash sale?
  3. are extra payments made to an ex-spouse to cover unanticipated increases in tuition in her nursing school deductible as alimony?
  4. what is the maximum federal capital gains tax rate from any portion of the gain on commercial real estate that an individual tax client sells?
  5. when would you use the annualization exception for the 2210 penalty?
  6. how are individuals taxed on section 1256 gains?
  7. how would you advise a client who makes large amounts of annual charitable contributions and typically reports large long-term capital gains?
  8. what cost basis is used when a client sells at the point of vesting employer-issued restricted stock shares that had no cost and the stockbroker has provided a 1099-b showing proceeds of $8,100?
  9. what would a minimum strategy be for a client with incentive stock options to avoid or partially avoid the alternative minimum tax (amt)?
  10. what is the equivalent taxable interest amount for a client with 4 percent municipal bond interest if his or her marginal federal tax rate is 25 percent (assume no state tax)?

reviewer qualification test: answers (no peeking!)

  1. it can be opened through the latest due date, including extensions, of the tax return for the year.
  2. the date the first or original lot of stocks was purchased.
  3. voluntary payments to an ex-spouse are not deductible as alimony.
  4. pre-1987 recaptured depreciation on real estate is taxed at ordinary income rates; 1987 or later recaptured depreciation on real estate is taxed, for 2015 tax reporting, at a top capital gains rate of 25 percent.
  5. when the income or deductions are earned erratically, bunched or not received or paid equally during the year, and it results in a lower or no 2210 penalty.
  6. the gains are taxed as 60 percent long-term capital gains and 40 percent short-term capital gains regardless of holding period.
  7. to consider donating appreciated long-term-held securities. the client would get a charitable deduction for the fair market value of the securities and not have to report the capital gain income.
  8. the employer is required to report the entire gain as wages on the employee’s form w-2. i would use $8,100. however, the technically correct answer is the cost should be the fair market value on the date vested, before deduction for the broker’s commission. a practical solution on small transactions is to use the net proceeds.
  9. to consider exercising as much of the isos as the client can to the point where the amt would kick in.
  10. 5.33 percent. divide 4 percent by 75 percent (1 – 25 percent).