jasdlm

Is the client's child eligible for your State's health program? There are special rules regarding transplants. If the child is eligible, it is likely to be income sensitive. In that case, you can set up a special needs trust with a corporate or professional trustee and have the donations go the that trust. No tax deduction involved.

I don't get it . . . does Ohio have a requirement for a separate filing (other than 2553) for an LLC to be taxed as an S-Corp?

Have her sign a confidentiality agreement. What happens if it doesn't work out? Who takes the clients? Does she have her own liability insurance? How does it dovetail with yours? Are you going to do any review or spot-checking of her work? (Just throwing things off the top of my head, here.)

KC, thanks for your post. To clarify, are you saying that he doesn't have to pay the SE tax, period, or just that he doesn't have to pay the SE tax if it exceeds the amount of assets he received (insurance proceeds, IRA proceeds, etc.) as a result of her death? Thanks.

Joan is right. Why roll to an IRA as a result of the QDRO? Then she only qualifies for the $10,000 penalty free. If she takes the distribution directly from the 401(k) pursuant to the QDRO, she can take the entire amount penalty-free under the divorce exception (Does NOT apply to IRAs).

Thanks so much to all of you!

When I said that to my colleague, she had to responses: 1) If he files MFS he still avoids her liability and; 2) What if he remarries before the end of the year?

Another preparer contacted me today to get my opinion on the following: Married taxpayers. Wife Died a few weeks ago. Wife had taken several IRA distributions with no withholding and also had some self-employment income on which no tax had been paid. Husband was aware of this. The preparer wants to recommend that husband files Single for 2009, and leaves wife 'hanging' with respect to tax liability. All assets passed by beneficiary designation, so there is no 'probate estate'. I don't see how filing 'single', when they were married at the time of the taxable events and there was no divorce, absolves H from any liability for the IRA distributions and SE income (from which he also benefitted). However, perhaps this is just my public policy bent, and my colleague is giving H the soundest tax advice. Thanks for your thoughts.

Hilarious!

Congrats, Deb! I had my first audit this summer, also, so I know how terrifying it can be.

The first audit (the one with the schedule C/LLC/Schedule A mess) ended as well as could be expected, I think. The agent accepted some expenses and disallowed many (which I expected). She did allow the K1 loss without any questions. She did 'audit' 2008 after finding the Schedule A (2106) mistakes on 2007 (just as John said she would). She did this by using a 'formula' based on 2007 rather than going through the return. I have never heard of this. However, it was very much to my clients advantage given that the K1 loss that would have gone on the 2008 return (again left off original) was very small, unlike 2007. In the end, client ended up owing about what the IRS had suggested in its examination letter, except that it took 2007 and 2008 off the table, so 'two for one', essentially. Client was very happy. I want to thank everyone again for the excellent advice. I am so appreciative of all who commented. One more to go (this Friday). Thanks again.

I continue to get bits of information piece by piece, and it's discouraging. JH just faxed me 2008 (I assume by mistake, since Client asked for 2007). The same problem is repeated, except the loss is over $24,000. Also, huge 2106 deductions for both spouses (even though one doesn't have a W2). Includes things like uniform expense (no, they don't wear uniforms . . . ), 'grooming', etc. All round numbers, of course. I feel like I'm being engulfed by flames . . . clients meeting with IRS is tomorrow (just learned) and cannot be postponed because it was postponed back in June because of the death of client's father. I only found out about this the day I initially posted. Is it likely that the IRS will move on to 2008 after 2007 examination? Aaargh!

I wish . . . I'd trade my brain for yours any day!!!

This is very good advice. Thanks very much. I talked with a CPA here and he is willing to work on both audit issues. He has a fair amount of experience, and actually has an audit with the same auditor a week later than my clients. I will participate every step of the way, but I will not bill my client . . . I will count this as hours toward my Chauffer's license! Now, I just have to convince my client to sign on to this plan.

Can I represent him in my capacity as an Attorney?

Thanks for the info, Jainen. If I understand correctly, you feel that it is probably not worth the money for my client to hire a CPA experienced in audits to help with this? The tax/penalties the IRS is asking for total just under $11,000. I assume the client should amend the State return, also . . . haven't even gone there. Also, if I'm interpreting correctly, the client would have received a 'notice of examination' letter and simply failed to respond? This makes much more sense to me than the first correspondence being the letter I have that I posted about previously, which my client insists is the first correspondence. Definitely don't have a chauffer's license, but logging hours toward the final exam and hopefully issuance of license!

The facts of my 'second' first audit are as follows: Client has been involved in a very long divorce which was final in late 2007. For many reasons (arguments over splitting deductions, etc.) he filed returns for 2003-2007 in spring of 2008. He received a letter that is more along the lines of what I would expect: "Dear >>>: Your federal return for the period shown above has been selected for examination." The are examining the 2003 return, but they are asking for copies of 2002, 2004, 2005, 2006, 2007, & 2008 returns. They are also asking for all supporting documents for 2003. I did not prepare the 2002 or 2003 returns. I did prepare 2004-2008. He owes substantial tax (has several LLCs that he manages or is an owner in. Hasn't paid any tax in the last 5 years.) He paid nothing with the filing of the returns. He is waiting for his huge house, which was about the only marital asset, to sell so that he can pay the taxes in full. I just received the 2002 return from the preparer this morning with a note that they cannot locate the 2003 return or any of the backup information. My client has nothing. I have a copy of what was actually filed, but that's it. I believe that the client took the return that was prepared in 2004 (for 2003) and hung on to it for several years. He requested a new copy, received it via email in early 2008, and filed that copy. His 2003 return has a capital gain from the sale of a business property (approx. $5,000), a large early retirement distribution ($250,000), and a rental loss ($11,000). His schedule A has a charitable prior year credit forward of $12,000 and $49,000 in mortgage interest. The return is missing information. I know this only because I have copies of the data that the IRS has. There is a k1 that is not on the return and a small amount of 1099 income (about $2,500). I'm still working through it. I might need to punt.

Thanks to all. I do realize 'garbage in/garbage out'. I'm trying to get some actual documentation. My client's father died last week, so there have been a few delays. Thanks for the advice, Jainen. I will start a new thread re: the 2nd audit. A question: The 'letter' is actually a spreadsheet (of the IRS sort) that says 'Income Tax Examination Changes' at the top. Under 'adjustments to income', line 1a says 'Sch C2 All Expenses', and then the expenses for schedule C are added back in. (Also $16,000 in 'Miscellaneous Deductions' on schedule A added back in, but I haven't begun to tackle that one yet.) Since this is my first experience with the process, I'm trying to understand . . . my client insists that this is the first correspondence received from the IRS. Is this likely accurate? It appears to me that, if that is the case, the IRS did an examination, disallowed expenses, and gave my client the option to agree and pay or be audited on the Schedule's C and A. Does this sound like the right procedure, or am I missing something that my client has not given me or doesn't recall getting? Thanks again for all the help.

Thanks, John. This sounds like a really good approach!

I have never had a client be audited, and now I have 2 clients being audited in the same week . . . both on returns I did not prepare. I want to make sure that I am qualified to help them. If not, I need to quickly refer them on. First Case: Client filed a small schedule C which resulted in a loss of about $14,000. IRS wants to disallow entire loss. The return was prepared by Jackson Hewitt. It is a piece of work. The client is pretty confused about the whole thing. From what I can tell from the paperwork (have not yet been able to get a copy of the workpapers from Jackson Hewitt), expenses client incurred as a member of an LLC (not a disregarded entity; several partners) was included by JH on Client's Spouse's schedule C. Client and Client's wife both do work for the LLC. (Basically, it is a small business started in the year being audited. My clients are the 'worker bees' and the other LLC members put up the capital.) K1 is in Taxpayer's name. Schedule C was in Spouse's name. Some examples of expenses taken on Schedule C: 1) 'Employee Expense' . . . upon investigation, this was a deduction for after-tax insurance premiums paid by taxpayer through his employer 2) It appears that money paid to the LLC by my clients to cover expenses was coded as 'professional expenses'. I am researching this; it appears to me that it was their initial capital contribution to the LLC, but I haven't determined that for absolute certain. 3) There was a number put in 'utilities'. There was no home/office deduction, and the best I can come up with is phone/internet expense. All numbers used were round numbers. There was a computer that was included as an 'other expense' along with some office furniture. The K1 for 2007 shows about a $5,000 loss, but this was not included in the 2007 1040. My question: The return is obviously not accurately prepared. I have my client working to try and pull together all documentation. It is not going particularly well. Would it be advisable to go into the first meeting with the agent with a spreadsheet documenting the way the return should have been prepared? I considered going in with just an amended return, but a local CPA advised me to prepare a spreadsheet rather than an actual return. Thanks for any input.

2 minutes, but I'm a lawyer, so at least I did better than 'never'!

My tax files are on our server. The software is installed on my machine and on my assistant's machine. We are each able to open returns, make changes, etc. It works very smoothly.

Thanks, Jack. I would have never dreamed I could do something like that at the printer level. Sometimes, what I don't even know that I don't know is overwhelming!

I like it! I have to work on pronunciation.

Thanks to both you you. I'll try the 'Client Copy' route.