Volume 11 Number 2

From The Corner Office By Mitchell Freedman, CPA/PFS

As many readers are no doubt aware, I am a founder and the Chair of California Jump$tart Coalition (CAJ$), a not-for-profit organization dedicated to improving the financial literacy of California's youth. Financial illiteracy among our young and young adults is epidemic and it pains me that new generations of Californians are burying themselves with credit card debt and not saving for their futures.

Financial literacy is a life-skill that is needed by, indeed owed to everyone. CAJ$ and other stakeholders have been at the forefront of the battle to provide personal financial education to California's youth. We have been at it for about ten years and although we have made strides with respect to public awareness, we haven't seen improvement that we can quantify with any degree of reliability. Three years ago the California Society of CPAs (CalCPA) and the American Institute of CPAs (AICPA) each started their own financial literacy initiatives, devoting significant human and financial resources to the goal of improving financial literacy. Yes, CPAs are naturals to be "troops" in this all-important fight.

Now, for the first time, CAJ$ and CalCPA are hosting the California Summit on Financial Literacy, bringing together leaders in business, education, government, not-for-profit organizations, and concerned citizens. I urge you to come to the Summit. By appearing you will be showing your support and perhaps taking a roll in the battle for the elimination of this bane of our society.

The Summit will be held April 26, 2006 at the Sacramento Convention Center. Registration begins at 9:00 AM and the program will be from 10:00 AM to 4:30 PM, with a reception immediately following. There is no cost to attend, thanks to our generous sponsors. If you are interested in attending contact me and I will send you a brochure. You can also reserve your seat by going to the CAJ$ homepage and clicking on the link at: www.cajumpstart.org, or, in the alternative, going to the CalCPA web site at: www.calcpa.org/summit.

Whether or not you can come, I urge you to consider making a deductible contribution to California Jump$art Coalition to help us to continue our important work. It is important not only to you but to your children and grandchildren as well. Your contributions can be sent in care of my office as indicated below.

I look forward to seeing you at the Summit.

Tax Notes What's That At The Bottom of The E-Mail? By Tom Trent, EA

Last year, the U.S. Treasury Dept. implemented changes to Circular 230, the rules of practice before the IRS that we, like all tax practitioners must follow. Generally, whenever a client receives written tax advice, including e-mail, certain rules must be followed. These rules grew out of the government's decision to attack the mechanisms used by the promoters of abusive tax shelters to sell these investments. But, while the government may have had valid concerns with abusive tax shelters, these rules extend into many common and accepted transactions that are not abusive. Under the new IRS rules, clients cannot rely on a tax opinion for protection from penalties unless the practitioner provides a comprehensive opinion considering many things, including the facts, the law, the legal consequences of the issues, etc. The new rules apply to tax advice for transactions that have a "significant purpose" of tax avoidance, a vague and uncertain standard.

Unfortunately, creating a formal written opinion requires a significant amount of time and effort, and resulting cost to the client. Most of the time, the expense required to do this is disproportionate to the benefit received. Therefore we will avoid writing unnecessary formal opinions whenever possible. An alternative to writing an expensive opinion is to include a disclaimer on all written tax advice furnished to the client. This is why you'll see the following disclosure on our written communications that involve the rendering of tax advice:

Circular 230 required disclosure:

This written advice (including any attachments and/or enclosures) is not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer. (This legend has been affixed pursuant to U.S. Treasury Regulations governing tax practice)

While we understand that the presence of this "legend" may well cause some clients to question the benefit of our written advice, its presence in no way taints the quality of our advice, nor does it mean that our clients can't depend on us to deliver accurate written tax advice. The only relevance of the legend is that if our written advice contemplates a desired tax result for a particular transaction and that result is not sustained, the taxpayer will not be able to avoid a potential penalty merely by having relied on this written advice. Of course, the imposition of penalties is not automatic, even if the Internal Revenue Service challenges a transaction, and various other defenses to support the position may remain available in order to avoid the imposition of penalties.

Medicare Part D - D for Difficult By Janet Gardner

I really stepped in it this time. I volunteered to help my mother TRY to understand the Medicare Part D - Prescription Drug Program and the more research I do, the more confused I get. There are a plethora of plans out there and if you choose one that covers your current drugs, it might not cover any changes your doctor makes in the future. If you're considering a plan, check with your pharmacy to make sure they will honor the discounts. It's like walking in a minefield without any detectors. Allow me to share some of what I've learned.

There are various ranges of premiums, co-payments, co-insurance, something called a "doughnut hole" (more on this later) and a "formulary." Each Part D plan covers a different list of drugs. This is the "formulary." Within the formulary there are different tiers. One might be generic, one name brand, etc. Out of pocket costs vary with each tier and sometimes with each pharmacy.

The annual deductible cannot exceed $250 for any plan. Some plans even waive the deductible. There are two ways in which the plans will charge. One is the co-payment. This is a fixed amount due with each prescription purchase, and these co-payments will be fixed for one year. For example, each prescription might cost $10 at the time of purchase. The other is the co-insurance method. This method charges a percentage of the cost of the drugs, payable at time of purchase. Under this method the costs can change quarterly as the price of a drug increases.

On to the "doughnut hole." This is the term to describe a coverage gap. After you reach your $250 deductible, you pay your share of co-payments or co-insurance; the plan pays the rest. However, there is a cap of $2,250 for total covered prescription costs for the year. After that, you enter the hole. In the hole, you have to pay 100% of all your drug costs until you have spent a total of $3,600. Worse, money spent on non-formulary drugs does not count toward getting out of the hole. After you have reached the $3,600 limit, insurance kicks back in and covers 95% of all formulary drugs for the rest of the year, regardless of the total charges.

Confused yet? There are several sources available to assist in deciding which plan is most viable. A tool at www.medicare.com will walk you though the process. You should have the names of the drugs used and the dosages and quantities, as well as the name of your pharmacy. Enter these into the program and it will list several plans. Whenever available, the program will change the drugs to the generic version.

A word of warning: I did this for my mother and had over 50 plans to choose from. A good place to get more information is the AARP website at www.aarp.org. If you need large type, try www.golmedicare.org. If you don't have Internet access, you can call Medicare at 1-800-MEDICARE and a person will assist you. They will not make the decision for you, but will advise you of several plans that are available to you. The personal touch can

also be found by calling the State Health Insurance Assistance Program at 800-677-1116 and asking for a local counselor. Also, some hospitals and doctors are offering to assist seniors in understanding the options.

Be aware that you must make a plan decision and enroll before May 15, 2006, or your plan costs will increase 1% for EACH month you delay enrollment in a plan. Pick a plan and you can change it once a year. It's better to have some coverage than none.

To sum it all up, while you don't have to make a quick decision since you have until May of this year to enroll, May 15th will be here before you know it. Evaluate the alternatives and review your options. If needed, get some help.

Heard in the Hall

Mitch Freedman attended a CalCPA Communications Advisory Committee meeting in Redwood City on September 27, 2005 and presided over Board of Directors meetings of the California Jump$tart Coalition on September 28th and December 8th in Los Angeles. On October 18th he presided over a California Jump$tart general meeting at the San Francisco Federal Reserve Bank. On October 24th and 25th he attended the AICPA Fall Meeting of Council in Rancho Mirage. November 30th Mitch and Karen Cho participated on a televised tax call-In show on KABC-7. December 1st Mitch attended a meeting of the CalCPA Personal Financial Planning Committee in Los Angeles.

Mitch was featured in the Fall 2005 issue of In Style Weddings, in an article titled, "You're Engaged!...Now what Do You Do?." Idea Fitness Journal, published his article, "Understanding Health Savings Accounts," in the October 2005, issue. Accounting Today featured him in the November 27th issue in an article titled, "Bankruptcies, Rising Rates, Inflation Roil Bond Waters."