SaraEA

Your client may be eligible for the Voluntary Classification Settlement Program. He is not under IRS audit but state, so he could be eligible. He only has to pay 10% of what he would have had to pay if the workers were properly classified, no interest or penalties. The program has changed over time, so this link may be outdated, but if I remember from update courses it has not gotten more stringent. http://www.irs.gov/irb/2012-51_IRB/ar16.html

I believe most clients in this situation have a drawer full of notices from the IRS and/or state tax depts. They do their best to ignore it until one day the tax authority drains their bank account or attaches their pay, then they show up at your door. You ask them to bring in all correspondence they have received and they deliver a handful of letters that, judging by the notice sequence numbers, you know represent about 1/4 or less of what they really got. The habit of ignoring letters from the IRS backfired on one of my clients recently. He came in after they attached his pay. I filed 7 years of returns, all of which had big refunds (some too late to collect). I came into work this week to find a stack of IRS letters telling me (their representative) that their refund checks for 2009, 2010, and 2011 weren't cashed for a year and expired. Would they please call to have the checks reissued. These are middle-class folks with a child in college who could certainly use $8k. I think they got in the habit of ignoring IRS correspondence and did the same with these letters that contained refund checks!

Today we had a call from a third client in less than a week who got a call from the IRS (caller ID spoofed). They are told they owe big bucks and will be arrested if they don't pay that day with a prepaid debit card. If they don't bite, next call comes from the local police dept (ID also spoofed). Last week a client had already sent her spouse to the bank to withdraw $10k before she came to see us about what could possibly be wrong with her prior returns. Today's client called about her dad who is an elderly man living on Social Security who hasn't filed in years. The newspaper had an article this weekend from a local police department that has recently fielded a dozen such calls. The emails scams are less frightening to the recipients but certainly more prevalent. I'm glad these clients contacted us before they paid up. I am really scared for how many others who didn't think to talk to us first.

If TD Ameritrade will not cooperate, call again (or you might have to have the client call) and ask for the Compliance Department. (To the person on the other end of the phone this is like pushing the red button to talk things over before the nuke attack begins.) Explain that you have reason to believe money is missing from a client's account and that you demand account history and especially details on the rollover. They might not sound too happy to help at first, but they know your next step is the SEC and should come around. Just maybe the broker is no longer there because of similar problems in other clients' accounts? TD Ameritrade has been named in many FINRA cases. Threaten all you have to. Hopefully they don't want anymore trouble. I had several clients with the same broker at Ameriprise who had insane numbers of trades and huge losses. I had each of them contact the Compliance Department. One was paid for most of his losses (after a few low-ball offers). The others are still waiting. I will say that since I had these clients file complaints, their accounts have been much better managed--investments that make sense for people their ages, minimal trades, etc. I had a few other clients at smaller firms I told to talk things over with their brokers about what was going on in their accounts and why they were being charged such massive fees. In every one of these cases, the brokers contacted me, learned more about our mutual client's financial situation, and made much better investment choices. Many of them still call me every year to see if the client's needs have changed. Sometimes all it takes is for these people to learn that someone else is looking over their shoulders to convince them to act in the client's best interest.

Housewife? Who is married to their house? Homemaker it is, you MCP. Actually it doesn't make any difference at all unless the taxpayer is taking employee business expenses, in which case an auditor might wonder why a mail carrier is taking deductions for meals and entertainment or malpractice insurance. Sometimes it makes a difference to the client. I had a guy who was "looking for work" for a good 10 years. About 5 years in I changed his occupation to "umemployed," and he called me out on it. Now that he's in his late 60s and collects Soc Security, I changed it to "retired," and again got called out. I guess their occupation is whatever they say it is, and as long as it has no affect on the return do whatever they say.

Of course the recommendation will be ignored because the IRS simply does not have the money. Remember that they have endured significant cuts in their budget (not cuts in the rate of growth, but cuts in absolute dollars) over the past few years. They have thousands fewer people working for them. At the same time their workload has increased enormously. ID theft has skyrocketed and they moved 3000 people to that unit, foreign account reporting is a big thrust that required training a lot of people (and is bringing in megabucks for the gov't), and they are responsible for a big chunk of the health care law (including stuff way out of their league like making sure hospitals do community needs assessments???). The head of Criminal Investigation for our multi-state region said he used to have almost 30 agents working for him, now he has 16. The IRS liaison in our area no longer has a cell phone. (He is responsive to emails, however, so he's still trying to do his job.) IRS people who used to come to meetings of NATP and NAEA no longer do because they have no travel budgets. Personnel no longer answer tax law questions but refer callers to the website and pubs, we can't submit POAs through e-services anymore because there are not enough workers to weed out fraud, the practitioner hotline no longer gives us speedy access to anybody. The IRS worked for a long time to use their resources most efficiently and had made giant strides in improving services. The can't continue that pace, and have lost considerable ground, when the funding dried up. TIGTA is always recommending ways to improve services that just aren't in the budget. They recently discovered that the amounts people who pay alimony deduct don't come near matching the amounts recipients report. Easy fix, right? Reprogram the computers and send agents after these people. IRS said no can do because the amounts they would recover would be dwarfed by what they'll get from assigning programmers and agents to ID theft or wherever. It's like a psychiatrist telling you to take a year off of work to relieve stress. Sounds great. But how do you eat in the meantime? TIGTA does a great job bringing problems to light, but they need to be more practical. They should join the Taxpayer Advocate at congressional hearings and let policymakers know the nation's "accounts receivable" department needs the money to do its job.

What has been happening at the IRS of late is horrific. I'm not even thinking about which political party or official is to blame. Recent events have far worse consequences than whatever these jerks did for whatever ends. They will get their just punishment (hopefully). Restoring the IRS's position as a fair and impartial administrator of the tax code will take much longer to accomplish, if it ever happens. Until the recent past, the IRS has done a remarkable job of operating within the law (Title XXVI). They had to set an example so that taxpayers themselves would follow the law under our "voluntary" tax system. They did things like send out timely 30-day notices, 90-day letters, respond to correspondence in a timely fashion (or ask for more time), followed the statute to the letter before they issued levies or liens. I went to graduate school with a number of IRS agents and was amazed at how well versed in the law they were. They knew exactly what they could do, couldn't do, and where they had a little wiggle room. The would cite Code sections off the top of their heads, which showed me they had a lot of training in that area. The professionalism of IRS employees, their adherence to law and overall efficiency in administering the tax code encouraged Congress to give them more and more responsibilities. Remember price controls (was it during the Nixon years?). Administration went to the IRS because their employees were tempered to operating by the law, in all its minute details, not only trained but trainable in new laws. Social policies like housing credits, education credits, energy credits, and now a chunk of health care were dumped on the tax collector because their employees could handle anything. If the agency moved at the speed of a rock going uphill like so many other federal agencies, Congress would never be able to make tax changes on December 30 and expect tax collection to proceed as usual during the filing season. They only did it because of all agencies, the IRS could manage it (and did, every time). Of course everyone hates the "tax man," so the IRS had to operate in a way that was beyond reproach. They did so for most of their history. Now to find out that they are corruptible and corrupted will damage all the goodwill they have worked for so long to create among taxpayers and Congress. And of course lawmakers have "punished" the agency by cutting their budget (real cuts, not just cuts in the rate of growth), so it is now public that there are less auditors and the chances of being audited are slimmer than ever. So fewer auditors will collect less money, fewer people will be compliant so even less will be collected, and our national debt will continue to soar. What business would cut its accounts receivable department, especially one that yields such a huge return on investment? I have often defended the IRS to my clients. I have great respect for the agents I know who take their positions of authority seriously and work hard to administer the laws fairly. I can never take their side again. The whole thing makes me sick.

I once had a client whose return I amended 3-4 times every year. He flitted from job to job, often having 4, 8, 10 W-2s. He'd come in with 6, I'd ask if he was sure that was it and file the return. Next week he'd come in with another, we'd amend and off he'd go until the next week when he came in with yet another. I guess when you work at that many places it's hard to remember where you worked and what you should be expecting in the mail. Gave him credit, though, for never giving up and trying to be gainfully employed instead of discouraged. This was way back at HRBlock, where you had to get those returns filed. Where I am now he would definitely go in the hold pile (along with those whose always get corrected brokerage statements or really late OIDs) until at least April 1. Jack, why would you not amend unless the tax change is at least $100? Does computer matching have some sort of threshold where those CP2000s don't go out unless the taxpayer owes $100+? When those letters get spit out a couple of years later the interest can double the amount due. And some states will send bills for $1.34. (PA is an exception--if you owe $3 or less they forgive you.) Amendments aren't that hard to calculate (although they take some work to print and assemble and make sure you have the right attachments), you get to charge for them, and it keeps the client from getting a surprise notice down the road. Plus you can do them in the off-season when you're not so busy. Why not?

If the estate only had $15 of income, it is below the filing threshold and doesn't have to file a return. Just file a 2014 return reporting the sale of the land and any other income. Filing for 2013 would be unnecessary and expensive for the clients. (Our estate returns start at $500 and go up from there.)

Just put the estate on a fiscal year. You do that by filing its first tax return with the FY May 10, 2013 to April 30 2014. Due date of the return is August 15. This is best for the beneficiaries, who likely already filed their 2013 returns, because they won't have to go back and amend. Whatever the K-1 shows will go on their 2014 returns because that is when the FY ends. The sale of the land will go on the next return, FY May 1 2014-April 30 2015, so they'll have plenty of time to do tax planning as the profits will go on their 2015 returns (filed in 2016). This won't work for the beneficiaries if the estate had a lot of income between May 2013 and April 2014 and didn't make any distributions. The estate will pay taxes on that income at a far higher rate than the beneficiaries likely will. Farmland might get special treatment under the tax code. Better do some research on that point.

When you asked about the "conversion process," I thought you meant all the taxpayer data not just identifying info. Usually when one converts they bring over W2 info, payor lists on Sch B, line items on Sch A, asset lists and depreciation, carryovers, etc. etc. How about government pensions that aren't fully taxable because the taxpayer has basis. You really need that critical info like value when begun, expected number of payments, how much basis has been used so far, all those details. How about prior AMT for possible credits, or energy credits already taken (if that ever gets reinstated), prior year education credits. If all you're going to do is enter personal info, you're going to spend a lot of valuable time during busy tax season hunting for and inputting necessary historical data--or worse, overlook it. I wouldn't bother entering just names, birth dates, etc., because not all of those clients will come back. If they do, as you said it just takes a couple of minutes to enter.

JohnH, you jest. Someone is going to input 60 returns in 3 hours? That's 20 per hour, or 3 minutes each. I'm fast on the keyboard, but in 3 minutes I don't think I'd get past their name, address, phone numbers, SS#, birth date (not to mention same for dependents). And this is supposed to include time for someone to check the data entry? Give that person 1 hour, so the original data entry person gets to input 60 returns in 2 hours, or 30 per minute, or 2 minutes each. Did you mean 3 days? Even that's stretching it unless these are really simple returns. I want that data entry person to work with me! During tax season I'll be able to leave at 5PM, or 4, or maybe take every afternoon off.

The student does not have to be a dependent. This from Pub 970: "Who Is Eligible You can take a distribution from your IRA before you reach age 59½ and not have to pay the 10% additional tax if, for the year of the distribution, you pay qualified education expenses for: yourself, your spouse, or your or your spouse's child, foster child, adopted child, or descendant of any of them." That's it. No other requirements. This is a Pub, of course, and not authority, but it confirms what you read in the Regs.

Why would you want to convert from UltraTax? It's a potent program. I have over 10 years of experience with it and never had anything but tiny issues with one esoteric form or another. Tech support is quick if you do need it. My only complaint is with the tax projections for the states--it doesn't always recalculate credits or recognize changes in income (they must want you to buy their specialized projection software) but it's spot-on for the federal. I'm also not impressed with how it tries too hard to "help" by remembering far too many zip codes and addresses. But I've used ATX in second jobs and UT runs circles around it. Before you switch, look carefully at the clients you're buying. If there are lots of entities, kiddie tax, carryovers that differ by state, multi-states, and anything else complex I'd stick with UT until you learn what it can do. It is not an intuitive program, however, so expect a long learning curve. But watch it seamlessly move data from the parents' to the child's return, from the entity K-1 to the individual 1040, from a deceased client's 1040 to the 1041 (even populating the beneficiary info if they are clients), and you will feel shock and awe. You will certainly pay for all it can do, but it will save you so much time you'll be able to work smarter and faster.

The professor's tax home is clearly in PA. If he had a job in NY and was hired to teach in Pittsburgh for a semester, you might get away with it being a temporary position expected to last less than a year. But since it was his only job, that becomes his tax home and no living or travel expenses are deductible.

A bit of background won't make the dead horse argument seem so silly. Did you know that the Enrolled Agent credential was created by the Horse Act of 1884? Apparently during the Civil War, soldiers were running through the countryside begging, borrowing, and sometimes stealing horses so they could (a) get to battles, and (b ) fight them. After the war the owners who never got their horses back were demanding restitution from the government. There weren't enough lawyers to handle all the cases in a timely manner, plus back in those days attorneys called themselves "esquire" and were thought of as esteemed professionals. They didn't want to mess with missing horse cases. The Treasury Department (this was before the IRS existed) therefore created a new class of professionals who were permitted to represent taxpayers before the US government provided they had specific training to do so. (Before that, only attorneys could do this.) Thus was born the Enrolled Agent credential. The first EAs helped people get paid for their confiscated horses. Over the past 20 years or so, several bills to regulate tax preparers have passed one or the other house of congress but none passed both. (Maybe one did, but it was vetoed by the President at the time.) I used to follow the hearings on these bills, and there was always strong congressional support for regulation. After years of doing what Congress does best--nothing--the IRS decided to take matters into its own hands and authorize itself to go ahead with regulation. Their argument was that the Horse Act gave it the authority to regulate people who represent taxpayers before it. That is a fact and was not in dispute in the Loving case. The dispute centered over whether tax return preparation constitutes representation. The IRS unsuccessfully argued that preparing a tax return that is then sent to the agency constitutes representing the taxpayer's intentions to the US government, and the Horse Act gives the IRS the authority to regulate those who do the preparing. The Supreme Court ruled that preparing a tax return does not rise to the level of representation. The real problem is not incompetent preparers but dishonest ones. Not a week goes by when I don't read about US Justice Dept cases against preparers who ran EITC shops, selling dependents, creating fake Sch Cs, charitable contributions, employee business expenses, etc., each defrauding the government of millions of dollars. I do maybe 500 returns a year, all done to the best of my ability to be true and accurate. One of these shops does 3,000 returns a year, most inaccurate. It doesn't take too many of those shops to dilute my good numbers and make it look like paid preparers are dishonest and idiots. Even ones like me, proudly credentialed under the Horse Act of 1884.

$360 for a partnership return? Are you trying to lose money? I don't know how many partners there are, but just producing the K-1 packages, calculating individual basis, loan differentials, etc. is worth more than that. KNOWING how to do those things is worth more than that. Even if their records are perfect, there's still a lot of work to do to complete the 1065. And how about the individual returns? I'd start at $800 if records are good and there are only 2 partners (all in the same state). This would not include individual returns. Accounting fees should be monthly and would depend on what kind of business it is--daily sales or occasional sales, weekly or more frequent deposits, employees or none, long or short bank statements. As others have suggested, don't trust that line about the former accountant not doing his/her job. Who could collect sales taxes and not notice they weren't turned over to the state for all that time (and not notice all the nasty letters)? Did the former accountant quit because of nonpayment? It's a real possibility, especially for someone who hasn't paid sales tax for so long. There are a lot of people who flit from accountant to accountant, moving on when their current person refuses to work for free any longer. Don't be that person. On the other hand, these potential clients might just want to get back in compliance and will be wonderful clients forevermore. Hopefully that is the case. But don't give your work and knowledge away. What would YOU be willing to pay for the services they need, knowing the amount of work that will be required?

Tom, I know that the "mills" don't include HRB. When I worked there, we had to go through all kinds of training for EITC--and that was before the stricter due diligence requirements took effect. I imagine that their training is now even longer and more detailed. I was never, ever encouraged to inflate a refund. The mills are the ones you read about that IRS's CI unit shuts down. They operate independent storefronts and are pros at producing bogus W2s or at least inventing businesses with just the right amount of income and expenses. One was recently caught with lists of stolen CHILDREN's SS #s and birth dates, which they sold to childless individuals who needed a kid or two to claim maximum EITC. These people get a hold of a large local employer's EIN and produce W2s showing just the right amount of income for the "sweet spot" maximum EITC. For people who have real W2s, these places invent medical expenses, charitable contributions, F2106 expenses, whatever the client needs. In our area one was caught last year with stacks of blank Goodwill receipts (the ones you get at the attended donation centers that you have to fill out yourself). He gave the receipts to clients when they started getting audited. Problem was that Goodwill had stopped using that receipt a few years ago and had since used ones with a newer design. He's in jail. I thought that check-cashing joints were prohibited from preparing tax returns starting a few years ago. Anyone know for sure? I got a referral from an attorney for a young man who died in a car crash last year. The attorney gave me the 2012 return, which was marked "self-prepared" on the appropriate line. Yet there was a full instruction sheet about how to file, and the top of the page had the name of a check-cashing joint on it. Do these places now have computer stands where you can prepare your own return, or do they really do it for you and call it self-prepared? The guy did receive EITC, but I didn't see any funny business so the return appears to have been accurately prepared. I read that next tax season the IRS will limit refund deposits to three per account. I don't know how much that will help because crooks will just buy 100 debit cards to accept their 300 refunds instead of a handful. The IRS has tried to work with banking regulators to require ID when people buy prepaid debit cards, just like you need ID to open a bank account, but to my knowledge nothing has come of it so far. The only way to solve most of the problem is to get refundable credits out of the tax system.

I have NEVER failed to have a penalty abated for failure to take a RMD. Most recent was a woman in her 80s who had never taken a single distribution from her TIAA-CREF. I just told the IRS she was old and didn't understand the mail she received. (Didn't tell them she likely didn't even open the mail she received.) Think about it. The IRS already has an image problem. It would look awful in the public's eyes (and some TV news department is likely to get a hold of it and put it in the public's eyes) if they were to penalize poor old widows of half of their yearly income by imposing the stiff penalty. Go ahead and file the 5329. Mention that she missed the deadline by only 20 days and has taken steps to correct the oversight in future years by signing up for automatic RMD with the custodian (and make sure she does so).

Lion is correct that if the state starts with federal AGI, it really doesn't matter how the W2 is broken out. The states all give the taxpayer credit for taxes paid to other states on the same income (where it was earned). All the fancy math is to apply the highest tax rate to that income. For example, say you earned $100k altogether. You made $1k of that income in one state. Normally, if you only made $1k that state wouldn't tax you at all. But it wants its piece of the cake, so it calculates your income tax rate as if you made $100k there and then applies that rate to the $1k you really did make there. The state where you live and made $99k will do the same thing, but it will give you credit for the taxes you paid to the other state. This is where it gets tricky. Say the first state taxes you 5%, so you paid them $50. The state where you live taxes you 7% on that high income of yours, so the tax on that $1k is $70, and you owe them $20 more after the credit. If the W2 isn't broken out, it doesn't matter because the one state will still give you credit for the taxes paid to the other, and tack on more if its own rate is higher.

Turbo Tax has been a boon to the paid tax prep business. All they need to do is get an IRS letter, or to come in one year because of some unusual circumstance like an inheritance or divorce only to learn they've been cheating themselves out of some juicy deductions. (Had one this year who have been claiming their state refund as income year after year, even though they were in AMT land and never got a benefit from it.) They all vow "never again" and become clients for life. We have lost some clients to DIY software, but most of them have the type of return they SHOULD be able to do themselves. We won't miss the W-2, maybe some interest, Sch A returns. In fact, we're referring most clients with EITC to H&R Block, where the preparers are well-trained in the required due diligence, record-keeping etc. To us it's not worth the risk (exceptions for long-term clients who just had an off-year, we know their kids live with them and the requirements are all met). And some of the simpler returns we're referring to VITA. Some clients won't move, but maybe some others will digest the suggestion and give it a try. I agree that the replacements are indeed more complex returns. The majority of our returns this year have taken 2+ hours (some many ++++ hours) to complete. For those looking to increase business, it pays to work with attorneys. We've had attorneys as clients and found an error in the way their own partnership returns were prepared, or were able to help them help one of their divorcing clients with the tax implications of various ways of dividing assets or retirement accounts, and before you know it they're sending tax law questions and estates and trusts to you. We've had the same response with our clients' financial advisors. Contact the advisor for this or that piece of missing info, they get the idea that you're thorough and really care about that client, and they begin to refer others. Another way to increase business if that's what you want to do is to specialize. I see this as the direction of the paid tax practice. No one could know everything, and as the code becomes more complex it's harder to know the basics of some tax situations. So learn everything there is to know (at least as humanly possible) about, say, foreign citizens with US income, US citizens with foreign income, estates, law or medical practices, bars and restaurants, construction businesses, or whatever interests you. Those clients will refer others, and you will establish your niche. We have more clients than we can handle, even after firing some. We intend to fire more. This is when we have to think about the types of return we want to do. The easy ones are quick and bring in revenue, but is it worth the stress of keeping up the fast pace? I'd rather sit at my desk for a few hours completing an intricate return than seeing 8 clients in 4 hours. Others would like it best the other way around. Something to think about as you take steps to shape the direction of your practice.

The quickest way to find out what happened is for the client to call the IRS identity theft unit (the number is on the IRS website). The people there are helpful and will tell them what was filed, and you don't have to wait for a hour or more to talk with a real person. We had four cases of tax refund identity theft this season (a possible fifth was an extension, but the client may have filed his own). Three were professionals who pay more in estimates than I've ever made in a year and if they overpay just apply it to the first quarter. One was really scary--a MFJ return was filed by the crooks, so both husband and wife were victims. Usually we can suppress the federal efile and go ahead a efile the state, but in at least two cases fake state returns were filed as well (the state has a refundable EITC). When will the IRS go back to requiring last year's AGI as part of the electronic PIN??? They used to require it. And we know it's already in the system because you need it to access client data in eservices. It is such a simple solution and would stop the thieves in their tracks.

Since this appears to be a systemic problem, I've contacted our IRS liaison and she's looking into it. I think the solution will be to print page 2 of the return and have the client sign it. Also keep originals of the Fed filing copy of withholding docs. If the return bounces, we can print the whole return, substitute the signed page 2, attach the withholding docs, enter the code on the 8948, and mail it without having the client return to the office. taxtrio, the reject code is not always the same. It varies by where on the return the decedent is located. I've had some with just the IND-9XX whatever, and others with IND-9XX-0X (probably relates to primary taxpayer, secondary taxpayer, first or second or third dependent). I have not had any rejects for clients who died in 2014. In 2013 I had a couple for clients who died that year, but both were instances of identity theft where the thieves filed before the family did. In those cases the reject was for returns already filed using that SS#. I never saw one about a locked SS# until this season.

Anyone else having this issue? We have had a number of returns rejected with the code that the taxpayer is deceased and their SS number has been locked. This means calling the person who filed the return back to the office so we can give them a paper return and pull the federal copies of withholding docs from their paperwork and attach it to the return they have to mail. (We scan everything and keep no originals.) With mandatory efile, you have to try to file first and then put the reject code on Form 8948. Can we no longer efile returns for deceased taxpayers? It would be nice if the IRS told us so so we didn't go through the motions and then have to call the taxpayer back into the office.

The very worst are the attorneys and financial advisors who convince elderly people who have no money to give their homes to their kids or to start trusts. These moves backfire more often than not and are so often unnecessary because the clients don't have much in the way of assets to protect. They end up paying for gift tax returns and annual trust returns, which cost them dearly. Not to mention the dangers of giving their homes away while they still live in them. I know an attorney couple who promise that when they retire they're going to go to all those free lunches and dinners these sharks offer and loudly start asking questions like "doesn't that only make sense if I have more than $5 (or $10) million?" I'd love to be in the audience.