MJG CPA

I am with OldJack on this one. I would probably "suggest" to the bank officer that he should contact the AICPA or other governing body, expain that these returns are questionable, and that he thinks a peer review is in order (without making accusations of course!). Since it is in the best interest of the AICPA to police their members, and they would not want a story like this "getting into the local press", they might want to take some action.

I tried to do a license lookup and this firm is not coming up, so I'm guessing if there is a CPA there at all, they are unlicensed. So they would not be subject to oversight agencies such as the state licensing board, the AICPA, or anyone wlse for that matter, right? So now what? They just fly under the radar and continue on defrauding their way around the globe - making it tough for the rest of us who are trying to do things the right way? Grrrrrrr... :angry:

>>Now I'm on the fence - if you do nothing<<

Suggest to the loan officer that they file a complaint with the CPA's state board to investigate his license/permit to practice. Of course you could do the same.

Yes, actually I'm considering that.

Call IRS Practitioner hotline 1-866-860-4259. Ask them if there's anything to be done other than to wait for it to be returned so she can sign it and send it in again.

ITS JUST THIS SORT OF THING THAT HAS GOTTEN THE BANKS AND THE BORROWERS INTO THE TROUBLE WE HAVE TODAY WITH PEOPLE LOSING THEIR HOMES AND BANKS BEING STUCK WITH HOUSES THEY CANT SELL. I DONT KNOW IF I WOULD REPORT IT OR NOT, BUT I CERTAINLY WOULDNT GO ALONG WITH IT. I WOULD PROBABLY TURN A CLIENT LIKE THIS AWAY. IMHO. SUE

I most certainly won't go along with it - I can't believe this firm would knowingly create such bogus tax returns for any amount of money. What fee would be worth it when the bank comes back against them on a defaulted loan they issued on the reliance of the CPA's "tax returns?"

At that point, you can make any excuse you want [new staff member, draft version, etc], but I think you're on the hook - as well you should be if you're dumb enough to go along with a scam like this.

Not only does that CPA office give a bad name to all CPA's, accountants, tax preparers,etc., but you're right, they are also contributing to the credit problems. It amounts to outright fraud in my opinion. And you can bet this is not the only client they're doing this for.

Now I'm on the fence - if you do nothing, I'm sure this firm will continue to spew out bogus returns for their clients' bankers. But it's not really my job to blow the whistle on them either - I'm not even "involved" in this situation. I was just asked to advise what was the likely cause of the discrepancy. Likely, the loan officer will just reject the loan and move on.

It just burns me!

>>what else is being missed<<

I think we would all be very scared if we only knew. :o

In 1987 I worked for a CPA and one of the preparers who was not a CPA, but working toward it, bragged about preparing two tax returns for the same person, one for the IRS and one for the bank. The CPA we were working for was aware of the situation and condoned it. I didn't work there for very long.

Were they smoking crack??! Why would you ever put yourself or your license in that position??

A loan officer received copies of a borrower's 2006 tax return directly from the CPA - copy had taxpayer's signature, CPA firm info; appears complete. Loan officer compares return to IRS transcript: AGI per paper return = $85,000 vs $13,000 per IRS. Lots of differences between the two, not just one item that was misreported. (Sch C gross income $120,000 on paper - $9,200 per transcript; Est tax pmts of $18,000 per paper; none per IRS, etc.).

Loan officer digs out paper copy of 2005 tax return also provided by CPA last year (in 2007) and compares to IRS transcript for 2005 which was just obtained this year. Same thing - large discrepancies between the two. (AGI of $90,000 on paper - $19,000 per IRS; $75,000 net income from sch C on paper - no sch C per IRS; $18,000 est pmts on paper - none per IRS).

Loan officer asks me what reasonable explanation could explain these discrepancies. I say, there is no reasonable explanation - one or both parties is lying.

Loan officer calls taxpayer to say there are discrepancies. He says, "I don't know - that's why I have a CPA - you'll have to ask her."

CPA says, "Sorry, we sent you copies of draft returns we had prepared for tax planning purposes. We have a new staff member and she must have sent the wrong forms."

I look at copies of the returns provided by the CPA with date stamps of May 2007 on the 2005 returns and 1/18/08 on the 2006 returns.

1) How would such an error have been made two years in a row?

2) Why would the taxpayer's signature be present on a "draft" copy?

3) If I had prepared "draft" copies, there would have been "DRAFT" stamps all over the place so they could never be mistaken for anything else.

This thing stinks to high heaven. I can't imagine why the CPA would participate in such a scam, if that's what it is.

My question to you is, what do you think is going on here? And second, would you report your suspicions?

Thank you for your responses. I think my farm rental client probably does not qualify for sec 179 under the rules as I read them, but am still researching - will let you know if I come to a different conclusion.

Thank you, RoyDaleOne!!

I have seen returns by other preparers claiming sec 179 on farm tile (land improvemenets).

I have a farm client who needs extra deductions this year & sec 179 would be helpful. Can you really take sec 179 on things like fences or farm tile? (I have always thought these didn't qualify.)

Does it matter if it's a farm rental (form 4835) vs sch F?

My client is settling his father's estate, who resided in PA. I am not familiar with PA taxes and having trouble getting return to come out the way I think it should.

Very small amount of income - $2,500, all interest and dividends, which was distributed to the beneficiaries.

ATX is not putting through a deduction for the beneficiary distributions on line 15 of sch DD (unless I'm doing something wrong), so Estate will pay tax on this income and then beneficiaries will be taxed again because their share of income is also being reported on their PA sch RK-1/NRK-1.

Am I doing something wrong? Surely PA does not tax both the Estate and the beneficiaries on the same income?

Your help would be greatly appreciated.

I guess the desire of both partners is to achieve a break even. The remaining partner retained all business assets and liabilities with net assets (partner capital accounts) of $25,000. The partner who left took a significant amount of business with him. Both partners agree to call it an even swap.

Is there any wording in the final dissolution that can achieve a net zero tax consequence on both sides?

What happened with the dissolved capital accounts? Did the 20% partner get his fair share of the business or did the other partner have a gain from his leaving?

That's where I'm having trouble. Originally, the partner was admitted to the business with no buy-in - he received a 20% allocation from the other partners capital accounts in exchange for the services he contributed to the partnership. And on the way out, he received nothing (allegedly due to self-dealing and a breach of his fiduciary duties in taking p/s clients with him when he left). The entire business has very few assets and the total partners' capital accounts show $25k at the end of the year.

I simply converted the capital accounts to retained earnings on the sole proprietor balance sheet, but am wondering now if there should be any gain/loss considerations between the partners?

A 20% partner walked away from the partnership (took some clients with him). Only one partner remaining, so for tax purposes, we dissolved the p/s last year and converted it to a sole proprietor business. The partners have finally decided to draw up a formal dissolution agreement. No assets or money will change hands. The 20% partner simply ceases his involvement with the business.

I do not see any tax ramifications of this transaction. Am I missing anything?

I'm just starting to work on my organizers, so I can't yet answer your question. I have one to add to yours though. On the Sch C Vehicle Information page, I added a statement and signature line on the bottom of the page (on lines 47, 48, and 49. It shows up on the screen, but not when I print the page. How can I get it to print?

In order to expand the print range, you have to know the name of the range, which may not be so easy to find. The easy way to get things to print at the bottom of a page is to insert your lines before the bottom line of the already defined page, which then automatically expands the range name previously defined by ATX. Ie, the last line of the sch C vehicle info page is line 44. If you insert lines at line 45 or below, you will be outside of the print range and your information will not print. If you insert lines at row 44, everything you insert will print.

Thanks for your replies. I settled on the conclusion that prepaid interest is not deductible currently. It would have been too large of an amount to ignore and the banker was not comfortable accepting such a payment and having to explain to bank examiners why he had a negative interest amount on the client's account.

A banker friend has a cash-basis farm client who wants to prepay 2008 interest on a farm note in 2007 for an added deduction. From the research material I am finding, I don't think prepaid interest is deductible currently. Does anyone think differently?

I guess my thought is that the farmer would be better off prepaying his crop input costs which are deductible (up to 50% of farm expense).

Any thoughts?

Yesterday, I was unable to log in to the ATX Community forum. Issue is resolved-please ignore my request. Thanks!

Exactly my response to the previous post on ATX training. I went to Chicago and it was a complete waste of time. In my opinion, too basic even for a beginner. We had 3 people in the class who were getting ready to switch over to ATX and they were so bored they were all playing computer games.

I was so disappointed, I submitted a request to ATX for a refund of the seminar fee (something I NEVER do), but have had zero response.

I just had a hard drive failure. I was using Iomega's REV drive for backup. Seems the crooks rigged the software so that if you use compression in your backups (default setting, by the way) you cannot restore your data to a new hard drive. Nowhere in their documentation do they mention this as an issue or warn of it in any way. The only way to get your data back is to submit to their data recovery service for $2,000 per cartridge. I have two cartridges.

Needless to say, I'll not be taking those crooks up on their offer to rob me.

Thankfully I'm a paranoid so-in-so and I have two other sources of backup from which I was able to restore.

As for my in house backup solution, I have switched to Western Digital's "My Book" and like it just fine - even got .5T for less than I paid for my Iomega thing.

That is horrible! I also use Iomega REV drive for my backup's, but I don't use compression. You can actually browse to any file on the backup tape from Windows Explorer and double-click to open it without going through a restore process, so I hope I'm shielded from the situation you describe.

What I don't like is that I am always getting "fatal system errors" and other assorted errors that I am sure are tied to the REV drive. We have tried updating drivers from Iomega website, but can't seem to get the kinks worked out. With an investment of over $700 between a full set of backup tapes and the drive itself, I can't afford to just take it out of service, so I continue to put up with it. But, boy if I had known this before buying the system, I would looked for an alternative. Buyers beware!

We just went through something similar. In our case, it was bonuses and terminations (do we have to match the severence pay or bonus pay deferrals that an employee may elect to make?).

Our answer was - "How is your plan written?". We went back to the plan and it was not clear. We ammended the plan to spell out exactly wat was eligible wages for matching contributions.

Canned 401K plans can be good, but you have to understand them when you implement. The language governs the rules, and if the language is not clear, you could end up matching more than the owner anticipated or vice versa.

Tom

Lodi, CA

This is exactly what I'm running into. I have looked at the Pub's and the plan prototype document, and the instructions for the prototype form, and it just says the match is calculated on "eligible" wages, but doesn't define what is eligible.

I'm still looking for answers, but I'm guessing there won't be anything definitive unless, as you say, we amend the plan.

I am looking for some guidance on the proper calculation of the employer match on a defined contribution plan(such as a 401(k) or Simple IRA). I keep getting different answers from the plan trustee, depending on who I talk to. My last call, I was told to consult a tax adviser!

In particular, my question is whether compensation earned prior to an employee's entry date into the plan is counted when calculating the co match. For instance, employee becomes eligible to participate in the plan on Oct. 1st. Wages earned prior to Oct. 1st are $30,000 and wages after Oct 1st are $10,000, for annual compensation of $40,000.

The employee contributes $2,000 to the Simple plan from his last quarter wages. If the company match is "dollar-for-dollar up to 3% of compensation" is the maximum company match 3% of $10,000 ($300) or 3% of $40,000 ($1,200)?

Can anyone direct me to a source for reliable information on this subject?

more likely the $250,000 mortgage is only 80% of his basis. That is very low, because when he started this project he probably hoped it would be worth twice that. If he bought the house himself at that time, his basis would be 500K with no room to exclude gain on sale. The corporation would make a quarter million dollar profit and be double-taxed accordingly.

You're obviously used to much higher-priced real estate. We are in a very rural area of IL, where a $250,000 house is in the upper percentile of home sales. There are very few sales over that unless there is acreage involved which there is not with this house. In my opinion, even when the real estate market was booming, the most he could have sold that house for is about $275,000.

Anyway, thanks for your feedback. You've given me something to think about. :)

The bargain is that he takes it with a low basis, and if the market improves he can expect to exclude gain under Section 121, a much better deal than the double taxation of a C-corp's ordinary income.

I still don't get it - where is this low basis you're talking about? If we use the full $250,000, that is his basis.

You are undoubtedly a cynic - not that there's anything wrong with that - BUT:

1) The corporation got its construction loan paid off period, so is at a break-even. The loan proceeds went to the individual, not the corporation. So where does the corp come up with tax on a $50,000 gain?

2) He didn't convince the assessor of anything. Our county has just implemented a new computerized valuation system that calculates the value of all properties within the county, based on sq. footage, age, construction materials, etc. The assessor is now merely a field person who takes measurements, but doesn't get to assign the value and the computer is not influenced by any amount of politicking. I still hold the property is not worth $250,000 even if a bank was foolish enough to lend that much.

But that also doesn't mean I'd be willing to put my neck on the line for it, because I can't prove it's not worth $250,000.

Still, I want to know about this low basis, though.

Point well taken.