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Sorry, Pacun, we aren't going to discuss this here. We know the rules on business use of the home, but I foresee this topic quickly devolving into politics, so this topic is being locked. Better to lock it now before the ruckus starts up and everyone's panties are in knots.

I got one of these before the warning went out. It told me to update my Taxwise software, so I knew something was fishy.

I only update when I open the program and there is an update. Or I update from within the programs. I barely read emails and if they contain links, I really think about that email before I click on the link. My rule is: If I will sleep well after refusing to click on a link, I don't click it.

If the employer will not correct the mistake, then I believe the remedy is to file form 4852 for each incorrect year. If the IRS letters still come, you have the tax code to back you up. I don't believe the basic accounting principle of materiality usually applies with the same meaning to tax law. The choice is to charge the client to file two incorrect amended returns or charge him to correct the problem if the employer will not do it.

The Pubs are usually based on authority. In this case the authority is section 451(a) which very clearly says income is recognized in year received unless one of the special rules from 451(b) through 451(I) applies. In regards to Pacun's comments; in this case the W-2c is clearly wrong. The instructions for W-2 says report wages in year paid. In Messina vs Commissioner, tax court ruled back pay was reported in year paid, not in years attributed. An incorrect W-2c is not a free pass to incorrectly file false amended tax returns.

What's wrong is that reporting the income in those prior years is the incorrect treatment, and the OP knows that. I agree with your general sentiment that we shouldn't audit or have to tie in every statement or tax form that a client receives, but in this case she and the client know that those W-2c are not proper, and I think that when we know that without a lot of extensive investigation but that it comes up in a discussion or that it's blatantly incorrect with a cursory look at those documents, then I think that not only do we have the professional obligation to prepare returns properly, we also have a responsibility to inform the client that those W-2c forms were issued in error. If we prepare returns with forms that we know are incorrect and we do not at least inform the client of that fact or suggest that they try to have them revised/corrected, then I think that might leave us open to penalty assessments and malpractice claims. These days, most accountant's malpractice insurance claims aren't from financial reporting, they are from tax-related suits. Right, we aren't attorneys, but in the OP's client's case, the law that we are interpreting and discussing is tax law that dictates proper reporting on the W-2s of back pay to the SSA by the employer and to the IRS by the individual.

Maybe I am wrong but I deal with the documents at hand. If I get a W-2C, I amend. If I audit every document that comes to my desk, I would ask each client to bring a copy of all paychecks, copies of the timecards and then make sure that the W-2 is correct. I trust the W-2 to be correct and I prepare taxes based on that. In this case, what's wrong with charging the client for amending the returns? If they own penalty for underpayment, then I have a good excuse to convince the IRS to have the penalty abated. Sometimes we have to limit our scope and deal with the documents at hand. If we don't limit our scope, we might be jumping to other disciplines such as law.

Since the LEOs isn't paying in to FICA and Medicare and there was no adjustment to boxes 3 and 5, there appears to have been no logical reason why the city issued corrected W-2s. I think that was an error on the city's part and suggest that you have your client contact the city to request that those be re-corrected to reflect their original amounts. I think it is all taxable in 2016 and should be included in this year's W-2.

I'm just now catching up on this topic, but I'm a little confused about why the city issued corrected W-2s for those earlier years since the LEO doesn't pay FICA or Medicare and why you are considering filing amended returns. This should be taxable on the individual's return in 2016 since that is when it was received. It seems that maybe (just guessing) that the city handled it this way because maybe other city employees that do pay into FICA and Medicare would need those corrected W-2s so that their earnings record properly reflects wages in the years they should have been reported, but the LEO shouldn't be reported that way and the city is in error with its reporting here.

No. I think this is covered in sec 6662 and 6662A under the sections "Special Rule for Amended Returns".

I love this. That is all.

In the 1120S system, you check the box on the K1 to print Shareholder basis statement on the Global Info tab, then enter it on the Input tab. Unfortunately there's no break down of what the carryover losses/deductions are. I made a suggestion to ATX to gives us the breakdown but they told me I didn't need it. And I told them not to tell me what I need or don't need. If you're asking about the 1040, there is a form called Basis Worksheet and you also have to check the box to calculate basis on the K1 input form.