Cathy

Marilyn, I had a newly married couple years ago in the same situation, and I found myself being their "Mom" and hugged and consoled them because they owed $116.00 on their 1040. I had to fight myself really hard not to offer to pay their balance...not because I didn't advise them properly on how to fill out their W-4's because they were a first year client. It was just that the situation was so brutally painful for them. Fast forward to present day....same couple's income has grown by 15 times what it was back then, but you guessed it, they never have owed since that first year and they always call me before they make any financial decisions that will affect their income taxes. The maturity as you spoke of has definitely increased by at least 15 times as well.

JB, Although stated above, just wanted to clarify and note the importance of the taxpayer obtaining the statement from the charitable organization (churches included) PRIOR TO FILING HIS/HER TAX RETURN or ON OR BEFORE THE TAX RETURN DUE DATE (4-15-14 for 2013 returns), WHICHEVER DATE IS EARLIER. In one court case, the taxpayer was able to get the necessary statement he needed specifically for his audit....HOWEVER, the audit took place, of course, after the due date of filing his original return. As the church dated the statement (for his audit) on the date they prepared it, the statement wasn't allowed for the purposes of his audit, thus the taxpayer had to pay the income taxes on the donation(s) to the church as a result of his audit. I feel the court case took everyone by surprise....a hard lesson for the taxpayer, but a very beneficial lesson for tax professionals as prior to the court case, I wouldn't have been concerned that the taxpayer obtained the statement a couple of years later for his audit...especially from a church. Just another example of why the code needs to be overhauled! Common sense is nowhere to be found in the code any longer. Take care, Cathy

The calculations on a 529 Plan will drive you nuts (be sure to include your final calculation breakdown in the original return or you will regret it in a couple of years when your client gets a letter telling her she didn't pay enough taxes). You have to figure it both ways to see how your client comes out. There can be other issues that the figures might affect such as the EIC, Child Tax Credit, etc..., therefore, you just have to see which produces the best tax liability for your client....I think the last one I did, it worked out better by taking a partial AOC credit. Good luck! Cathy P.S. The reason I suggest for you to send a breakdown of your calculation with the original return is that if you wait, not only will you have to send in the calculation, but you will be instructed to also send in all receipts, etc...

You are correct. "Hardship" rules involve 401(K) plans and IF an employer allows the purchase of a home to qualify under their "Hardship" rules, the taxpayer is responsible for a 10% penalty and the income taxes on the amount of the distribution. There is no $10,000 limit on the amount of the distribution, neither is there a wavier of the 10% penalty on the first $10,000 in this case as the distribution is from a 401(K), not an IRA. (Some employers might have limits, although I had a client who withdrew his entire 401(K)a few years back.) Just had two clients who were very fortunate. She separated from her job in 2013 then transferred her 401(K) to an IRA. The fact that she no longer worked for her 401(K) employer is the reason she was able to roll-over her entire 401(K). She and her spouse shortly after decided to build a new home as they were tired of paying rent for about 5 years. The first $10,000.00 of her distribution qualifies her for the wavier of the 10% penalty as it was a distribution from her IRA. The clients were still disappointed they owe both Federal and State taxes, however, they lucked up with a $1,000 savings on the penalty. They swear they will call me first before they take such actions. Take care, Cathy

Mashburn, I think it's great that you are trying to get your client the maximum refund, however, none of the people you spoke of qualify your client for Head of Household. The whole issue with the proper filing status has gotten to the point of being ridiculous, so I can certainly see how confusing it can be. Just remember, there's a good probability your client will be very angry when he has to repay the tax savings on Single versus Head of Household. My suggestion is to take a break from it for at least a few hours, then follow the Head of Household instructions paying very close attention to the footnotes if you are using an IRS publication. Also, please never take the word of an IRS employee on the toll free line as their word isn't anything you can use to defend your client against using the wrong filing status. Take care, Cathy

Don't "fret none" because if you were just notified about this situation, after researching (googling NJ Excise Tax on Cigarettes and the NJ State Dept of Rev), NJ had a Tax Amnesty program that ended on 11-01-13 that could have saved her big bucks with the penalties. Just tell her your magic wand is in the shop being repaired and to pay her bill if she did indeed buy the cigarettes that NJ is saying she did! And call her before Thanksgiving Day so you can let that big black cloud sit where it belongs for the holidays......over her head....not yours!!!!!!!! Take care, Cathy PS. I'm a smoker also and still have no sympathy for her! ;)

I'd put this one on the back burner because they may or may not be divorced by 12-31-13. At the moment, you can't file a return for 2013 for her anyway. Once the year has ended and the couple's marital status is determined, it will be a lot easier to make a decision as to your involvement (or lack thereof) with their tax preparation. Take care, Cathy

Hi Jack, Count me in too, please. Thanks, [email protected]

Terry nailed it! ????

Mas, Personally, after seeing this type of return at least a couple of times each year, I would suggest (not request) that he might want to ask for a refund. My fee would be $75 for the 1040X, then my normal fee to file the return as if I had been the original preparer. I would not worry about discounting my fee as it was his decision to have his return prepared by someone else. I wouldn't worry about him going back to the same preparer as I feel he learned his return wasn't prepared correctly. And if he does go back to the same preparer if your fee is higher, so be it! It seems the same rule applies in just about every business. The one who you help the most is the first to do the wrong thing to you, the person who bent over backwards to help him/her. Just my 2 cents worth!

I also had something similar...when shutting down the program for the night, an error message appeared saying that the back-up copy couldn't be saved. I forgot the exact error it gave and was so fed up with this program I'm still having crash on me when I go to re-create an efile, just another reason I'm so far over the fence that it doesn't look like I'll be back with ATX for the upcoming season!

I've had just one 1099-Q and my client also received a letter from IRS. Part of the distribution was taxable as the education credit produced a greater refund. So it appears that possibly all of the returns with a 1099-Q will get a letter unless 100% of the distribution is taxable. Mr. Pencil's reply was 100% correct. If anyone gets the letter, respond to it exactly as he stated. If I have another 1099-Q in the future, I will file a paper return showing the formula used to compute the taxable amount and will also attach a copy of each receipt. Trying to get all of the receipts together after a couple of years have gone by was hard for my client who was disorganized while attending school while raising a family, The distribution was large, however, with being able to use r&b even while living at home (plus other incidental items) allowed the client to be taxed on a relatively small amount.

Catherine, I've live about 800' from a train track since 1979 and would love to talk to your friends about trading houses for vacation each year, but you must warn them that I AM NUTS after being woken up from sleep night after night after night. There is one engineer that all of the neighborhood would love to meet face to face one day. He is the one who lays on his horn 2 miles prior to the crossing and continues to blow it for another 2 miles once he passes the crossing! The night Desert Storm began, he never let up on his horn....at all! With the train and a local F-15 fighter buzzing his Dad's house (another neighbor) to tell him he was leaving, needless to say, my den was home to many Moms (with their kids) whose husbands were working the dog shift at the local plants. My husband was a contractor and was the only man left in the neighborhood and was old enough to be a father and grandfather to our "guests". I've never told all those Moms their "father" was more afraid that night than all of them put together! He just knew that retaliation was quickly coming by way of all of the oil refineries (many located not far from our neighborhood) being blown off the face of the earth.

Suspending drivers licenses didn't make a difference in Louisiana. What DID do the trick is when they started suspending hunting and fishing licenses! Them fightin' words!!!

Wasn't this the excuse IRS used for not supplying the Refund Cycle Chart this past filing season. I had read somewhere and even told my clients that IRS had said they mistakenly refunded billions of dollars in CTCs when taxpayers used ITIN numbers for those dependents, thus certain returns would be scrutinized to make sure it didn't happen again. Therefore, iRS would not be issuing the Refund Cycle Chart as refunds may be delayed due to the returns being scrutinized. As I recall, the 4.2 billion in refunds were issued in an election year....ooooops! I'm sure there is more to the situation than we will ever know!

MsKats, Congratulations! If you see my post to you on the fourth page, I was in complete agreement with you from the beginning! You probably didn't have time to notice as rather than getting some tips or "have you ever seen this before", some fellow posters felt it was their responsibility to tell you how wrong you were. I've said this before and I'll say it again, years ago the Dean and Professor of Tax Law at LSU told me to Never, Ever give up on a position I would take concerning a particular tax law unless and until someone could prove me wrong! I was not a student of his. I had called him at the request of an elderly client to get the Professor's take on my position I took in light of a tax issue this client was faced with. After discussing at length why I felt my position was correct and his (the Professor's) was wrong, the Professor told me to give him some time and he would do some research and get back with me. When the Professor called me back, he began our conversation with the "NEVER, EVER give up, etc....". I was already a bit hardheaded and set in my ways one might say, however, I now saw my "hard headedness" as an asset rather than a liability! Inasfar as representing your client before the IRS without the presence of the client (a fact that is often overlooked), you have every right to as you prepared the return and the return is under examination. The POA that is sent in to the main POA office needs to have those 2 facts documented with the POA application even though that information one would think should be available to that IRS division already. Had you not prepared the original return, a letter in answer to the CP2000 Notice you drafted and had the clients sign usually takes care of the issue if the fault lies with IRS receiving incorrect information, etc... Personally, I think the term "EA" is not a good choice for the term used for the designation of Enrolled Agents. I don't think I would trust one to handle a tax return or questioned matter for me as I would feel that person would be working for the best interests of IRS rather than for my best interest. That is still the reason I have resisted getting that designation....nothing against them personally because I know what an EA is, however, I just feel it confuses the public. Even I see a few of them ACT like they are working for IRS...not all, by any means. At this point, it's just something I would rather not be involved with at the present time. I have gone with clients to audits and each audit I have attended has resulted in a no change audit. Yes, I know the reason I was able to go to the audit is because the client was also in attendance. I don't take on clients unless they do things by the book as I have too many good clients to represent. So I don't take even one or two who want to make their own rules as I don't want my honest clients to be in jeopardy with one or two "bad clients". I feel it is an education for them to attend an audit and they leave knowing they have nothing else to fear from the "iRS MONSTER". The first 10 to 15 minutes usually are spent by the auditor and me discussing (and laughing) how it is so easy to spot a taxpayer who is attending his/her first audit as they usually are white as sheets. All of my clients so far have left any office audit with a whole new outlook on what in life they have to fear....and one thing is no longer the IRS! I won't even go into the appeals where the appeals auditor, even knowing I wasn't an EA, etc... told me he wanted to work with me as he could tell by the letter I prepared for the clients that he could see I was very versed in the particular tax issue in question. The appeals officer ruled in favor of my clients which also set a prescdence for some 600 other employees who worked for the same employer. It would take too long to give the details and I'm sure I might ruffle a feather or two because I don't have the "EA" designation. In closing, from one lowly preparer to another, WAY TO GO!!!!!!!

Kea, I believe it's Pub 570......then check the section "inherited IRA". The additional information you have now will certainly help you. Also, I'd search the pub for the info on RMD's for the owner in the year of his/her death. As it seems the credit union might be lacking in info regarding these types of situations, the more you know, the better it will be for the client. I once had to argue with a credit union about the legality of one of my elder clients being able to make a deductible contribution. It might just be a lack of training or possibly the number of IRA's they do each year versus a bank........possibly the quality of training for advice on inheritance laws in general and how they pertain to IRA's plays a big factor as well. I don't know about the state you are in but in Louisiana one can always renounce their inheritance and "forced heirship" is another hurdle that must be taken into consideration in cases such as this. That's why I'm surprised that the taxpayer or the attorney and/or the administrator of the estate weren't involved any more than it appears they were. There is of course, the possibility that the IRA was the only asset to pass to beneficiaries after the death of the mother. Good luck and be on your toes with the credit union. If you find that they hurriedly made an incorrect withdrawal for your client, they can certainly go back and "fix" it, and don't let them tell you otherwise!

Kea, RMD's withdrawals for a beneficiary have separate rules. Review the rules for a non-spouse beneficiary before you decide anything. Normally, the first distribution is not required until the year AFTER the death of the original owner. And also the rules are different if the owner had reached the point to where RMD's were necessary. Use Form 5329 with an explanation attached to tell IRS what changes have been made (usually automatic withdrawals) to assure them that the same thing will not happen again. As to whether it's the bank's responsibility, I disagree. The beneficiary has the responsibility of taking the RMD whether it's required by 12-31 of the following year or within the 5 year time frame. Again, the rules will vary. An executor and/or attorney if probate was necessary holds as much responsibility as the taxpayer, however, the penalty is responsibility of the taxpayer. I always ask whether or not my client has an inherited IRA. Not everyone will, but it happens more times than you think and will continue now that the boomers are aging.

IMHO, Joan, you have plenty of knowledge to share (as we all do) and your 2 cents is worth as much as mine. In sharing that knowledge, we can be civil with one another or we can be down right ugly. I thought we had left behind those that blasted fellow members. Evidently, we didn't. Please think before your write. Thanks!

>>>I have serious frustrations issues...and will sound very condescending when I point out 2011 Pub 519, page 17, third column.<<< MsKats, Trust me...it's not as hard as it sounds. You can vent (scream about their lack of knowledge with as much colorful language as you wish) when you are put on hold. I was put on hold 7 times because I failed to have the publication and page numbers handy. My issue was iron clad correct in favor of the taxpayer so I felt all that was necessary was for the auditor to speak with her "supervisor" to confirm the legality of the deduction.....NOT......the supervisor was just as clueless as the auditor was. The last time she put me on hold, I had vented already until I had nothing else to rant about so I used the time to get the pub and page numbers ready. However, the auditor and her supervisor FINALLY had found them when the auditor took me off of hold. The auditor told me to tell my clients they would receive a "no change" letter in 4 to 6 weeks. The case was closed with no further frustration. If the auditor suggested the "appeals officer" in a letter already, you can always tell her/him before you proceed to appeals you wanted to "run the pub info by her". She wouldn't want something going to appeals if she missed something....I would think...or rather hope so anyway! At this point, you have nothing to lose!

You took the words out of my mouth! I was going to suggest you refer to the Publication or document that will tell the auditor how each item in question is handled. Also, list the page number, the paragraph number.....or better yet send a copy of the page with the Publication # noted and highlighted along with the info to prove your point (also highlighted). It's inconceivable that IRS is filing positions such as auditors and supervisors of auditors with people clueless about the tax code! I know your frustration!

Never have I seen a response from correspondence sent 5 days prior be answered by IRS. As their letters are usually "post dated", their "reply" was probably written around the end of May, therefore, I'm willing to bet my life that the second piece of correspondence was sent and written as if the taxpayer had never responded. Did you actually see the first piece of correspondence from IRS? I'm wondering if it was a correspondence audit or a CP2000 Notice. IF it was a CP2000 Notice, the latest "re-designed" ones are horrible and often contridict themselves even on the same page. Don't knock your head against a brick wall until you're able to talk with someone at IRS to find out what's really going on. 6 to 8 weeks has been the average lately for IRS responding to taxpayer's answers to correspondence audits.

Don't forget about considering EIC for the children's mother. And note I said "considering" rather than the mother definitely qualifies. Just need to take a look at the entire picture. The Tax Book has a section for answers for different scenarios such as the one you have.

As two of the businesses are rental income, I'm sure your client is well aware of who has paid their rent and who hasn't. I personally operate 3 businesses (mini warehouse rentals, washateria and tax business) and use one Quickbooks account and one bank statement for all three businesses. It's very easy to distinguish the income from one business to the other....expenses as well. It appears that possibly your client isn't being entirely open and honest with you. Before I would spend my time worrying whether or not I should sign a return, I'd show him the figures you have worked up so far, present an invoice to him and hope for payment, and lastly, send him down the road. If he insists he will fully cooperate with you then, I'd file an extension and work on it when time allows after I get a sizable retainer. Setting up an online account for his existing business/ personal checking accounts could be very helpful in detrrmining not only the source of his income, but the expenses as well. I would not tolerate this client playing "dumb" with me. He either fesses up and acts responsibly or he walks.

Wouldn't you just know it! An 84 year old lady won the Powerball because the person in front of her in line let the lady go ahead of her! The moral of the story is as stated in the title of this thread. Note to self: Study family ancestry to see if we have any "MacKenzie's" in the family...first thing in the morning!