Leaderboard

You have one spouse accusing the other of unreported income. You don't know if this is based on fact or supposition or which one is being less than truthful. Tell them to each find a new preparer because the IRS would consider it a conflict of interest if you prepared both their returns. No need for further explanation. Invite them to come back as clients when the divorce is fianalized.

I don't like divorcing couples. I try to run them off by telling them that I will not do their returns unless they can work together to get the best result for their overall tax situation. I tell them they need to agree which checking account the refund will go to (if there is one) and who is writing the check to pay the taxes if there is a balance due. I promise them that if they fight in my office I will hand all their documents back to them and not complete the return. So far it has worked. But I may just have been lucky. It is a conflict of interest trap to do MFJ for divorcing couples. It just can't turn out right. @GraceNY My first blush take is the estranged spouse is angling for an argument in court that the other spouse makes more and therefore the halves should be bigger. I would run from it. Hand them back their docs and say "sorry, I cannot help at this time". Send back a certified letter the the estranged spouse terminating the engagement, and CC the attorney. Tom Longview, TX

Interesting discussion. It's a balancing act between due diligence and getting the return out the door with the least amount of work possible

I agree, 3 years ago i terminated two long term clients who were legally separated at 12/31, when i discovered one spouse was not truthful. I mailed them each a letter along with their tax documents saying that I could not prepare their tax returns due to a "conflict of interest."

Tell the taxpayer that whenever you see a 1099-NEC, you always ask about additional self-employment income that is not reported on a 1099, because most self-employed people have that. If they lie and say no, I'd recommend that they go to another preparer. And really, you should probably recommend that anyway. You don't want liars and cheaters for clients.

https://www.irs.gov/pub/irs-pdf/p5709.pdf Also, IRS Pub. 5708

Due diligence comes first in my book. In this case the the only extra work is probably the form 2553 which is simple. An initial / final 1120-S is not going to be much different than a 1065. Sure they are a couple kids that made a mistake. If they were my clients I might give them a $ break but not a free pass to avoid compliance. Their actions created an entity where the members were paid wages and shared in profit and loss. Why not report it accordingly?

Abatement for ignorance of the law does not apply to inaccurate return by preparer. Late Sub S election and 1120 S covers all the bases with very little extra effort or cost.

From an AICPA source which did not give a cite: "This administrative penalty waiver allows a first-time noncompliant taxpayer to request abatement of certain penalties for a single tax period—one tax year for individual and business income taxes and one quarter for payroll taxes." There is also this possibility: Internal Revenue Manual Section 20.1.1.3.2.2.6 (11-25-2011) Ignorance of the Law 1. In some instances taxpayers may not be aware of specific obligations to file and/or pay taxes. The ordinary business care and prudence standard requires that taxpayers make reasonable efforts to determine their tax obligations. See IRM 20.1.1.3.2.2, Ordinary Business Care and Prudence. 2. Reasonable cause may be established if the taxpayer shows ignorance of the law in conjunction with other facts and circumstances. For example, consider the following: A. The taxpayer’s education. B. If the taxpayer has previously been subject to the tax. C. If the taxpayer has been penalized before. D. If there were recent changes in the tax forms or law which a taxpayer could not reasonably be expected to know. E. The level of complexity of a tax or compliance issue. 3. Reasonable cause should never be presumed, even in cases where ignorance of the law is claimed. 4. The taxpayer may have reasonable cause for noncompliance due to ignorance of the law if the following are true: A. A reasonable and good faith effort was made to comply with the law, or B. The taxpayer was unaware of a requirement and could not reasonably be expected to know of the requirement.

So, the business dissolved at the end of 2022? Or, ceased any further business activity? First & last return?

A lot of the stories are biased one way or another, so I am not going to post a link. But you can google the story. It is all over the web. IRS Consultant illegally downloaded decades of tax returns of the nations wealthiest taxpayers, including a "public official" widely believed to be former President Trump, and leaked the information to news outlets, most notably the New York Times. He faces up to five years in prison if convicted. ***warning - rant coming*** I HOPE THEY CONVICT THE JERK AND MAKE HIM SERVE THE WHOLE 5 YEARS WITHOUT A CHANCE OF PAROLE. I wish Congress would pass a law that says anyone who distributes taxpayer information without written (not click through T&Cs on a website) agreement of the taxpayer should face the same 5 years. ***rant over*** Tom Longview, TX

It's not well publicized but most of the data management, all of the computer programming and system engineering functions are performed by third parties under contract. Consulting firms like Accenture, Booz Allen & Hamilton, Deloitte Consulting, Microsoft and ID.me.

After just reading about the millionaire non-filers, I would just leave it alone. W2 withholding and SE Tax end up about the same. Apparently the IRS just doesn't know their butt from their elbow and are going after the little guys. I doubt that this would ever be questioned. Just because they might have an EIN doesn't mean that they conducted any business. A little humor here as I had two young fellows approach me this summer to set up their Partnership. They came in together and I told them explicitly what the steps were going to be and they both assured me that they understood. They both promised to bring me the Partnership return as well as their separate personal returns. I never like to prepare a 1065 if I don't also get to prepare the returns of the Partners. So far, that has always been the case. The Primary Partner here already was a client of mine as a Sch C filer. We can do good things and issue great guidance if they only learn to ask.

@Gail in VirginiaTake a look at Rev Proc 2013-30 for the late filing of the 8832 and the late S election. I think you have 3 years to file this...but check it out yourself, I only skimmed it. It may be your "magic bullet" to pull dumb and dumber out of this mess. There will most likely be a late filing penalty, and I don't think you can get them out of that (and frankly, I wouldn't try, they need to pay the price for their actions) Tom Longview, TX

I will just say it... who cares if they will save some money in taxes by filing jointly if they will have to fork it out to the lawyers. While we, preparers, hate divorcing clients, the IRS loves them because they share extra information and the IRS wins most of the time.

I'm in the middle of divorcing couple right now. And what should be very straightforward just gets messy with people. I don't know why you are afraid to ask if they have other income they are not claiming. You should always ask that question regardless of what they have given you. It should be outlined in the engagement letter that you should always make them sign. You have to be a hard-nose with divorcing people. As a rule of thumb - divorcing people should just file MFS. Don't even entertain the idea that they should be able to get along.

https://www.identitytheft.gov/#/

I would first contact the NYS DOR fraud division and report this.

Disregard. I found the sale of primary Residence tab under the Bulk Disposition Setup and filled that out and it gave me my maximum exclusion. I am confirming that this is reported on the Form 4797? They will owe some tax because of some rental income and depreciation recapture?

They paid all their taxes via W2 withholding versus reporting it on their tax return. While it wasn't correct, they made a good faith effort to comply and I'm guessing came VERY close to the same end result.

The story was just published by the NY Times, so it's for real. I won't post the link because you have to be a subscriber to read it. The leaker was a gov't contractor. The article explained that the IRS was so careful not to leak Trump's returns that they actually constructed a safe to keep the paper copies. Apparently contractors are not always adequately trained, which is the weak link. Why are contractors handling our tax data?

I don't know, Tom. I thought that had to be done on a timely filed return which this is not. It should have been filed by September 15. Also, I thought that the automatic forgiveness was if the return was filed in time for the partners to file on time. Neither partner got an extension because they both filed based on their W2 rather than after the partnership return. I did point out that if they ever start another business, they might was to talk to a tax advisor before they begin instead of after they mess it up.

I plan to file the 1065 - I just questioned whether I would need to correct the mess they made by filing w2s on themselves first.

well - this just got worse. There is already a transcript of my clients "tax return" with the IRS. My client has not filed yet.