Cathy

You are absolutely, positively correct, Joan! I think a couple of years in prison will (might) teach them to not only to open, but read their mail, as well! Seriously though, wouldn't our jobs be soooo much easier with that type of "penalty". Our jobs might not be as profitable, but they will be so much easier! I found out "the rest of the story" today in regard to my original post....now I just need to figure out how I can edit the title! But since "Cathy" is not my real name anyway, maybe IRS will never connect me to my post. My REAL name is Paranoid! ????

>> I want IRS to catch people (like your clients) who don't report investment income >> J, After giving your comment above a great deal of thought, you are right! I also want my clients to be "caught"! The very idea that they didn't even open correspondence from a wedding gift years ago of a few shares of stock is appalling! The fact that both of them work and contribute over $20k of Federal income taxes each year is certainly no excuse for not having time to review each piece of mail they receive just because they are exhausted when they get home at night! Furthermore, I think they both need to serve time in tax prison for not including the $19 of Qualifying Dividends on their 2012 tax return! The taxes that they were trying to evade ($2) could have been a partial payment to an individual who had no income taxes at all withheld and needed their $7500 refund to go to the casino a couple of times! That's the least my clients could do to be able to see someone else be afforded the luxury of having fun instead of working full time all year long! Heck, I might just tell them that they do actually owe the $1k+ in taxes as suggested on their recent CP2000 notice! That will teach em! Also, I might just "accidentally" leave off the interest they claim each year on next year's return just so I can make sure they are punished enough! Now that my overtaxed mind has had a break (and a good laugh), time to get back to work! Again, thanks for your input! Really...I'm sincere when I say that! Have a great day! ????

Joan, I have no earthly idea how we have such differing views unless it's a matter of what is coming out of different regional offices such as the time when (for years) ALL of Louisiana's law enforcement personnel could work extra duty when in uniform and carrying a weapon and not have to pay any self-employment taxes until such time as another district learned of the "special memorandum" notice sent out telling those involved with Louisiana returns not to assess any more se taxes and to expect (and approve) amended returns for those Louisiana officers having paid se taxes in prior years....the other district (through their General Counsel) put a screeching halt to the automatic exemption from se taxes......who knows?

Yes, however, there are exceptions whereby Federal law can trump some state community property laws. In reviewing what you are faced with in California with the RDP situation, etc.. it made me quite nauseated! I'd rather face alligators any day in Louisiana than to face California's laws! Again, thanks for your input!

Joan, I've been doing taxes since we carved returns in stone...or it seems that way! I know the differences, believe me! "A CP notice is seen by no human eyes until a response letter comes in." Sorry, but I can't tell you how much I disagree with you on that statement! I have been told too many times by IRS agents themselves that is simply not the case. Please re-read my posts and if you still believe that a CP notice is seen by no human eyes until a response letter comes in, I have a couple of bridges I'll sell you for pennies on the dollar! Just wait until you see the "new" layout of a CP2000 notice. They were recently changed to make it easier for the taxpayer to understand. They are a joke! Take care, Cathy

Thanks Joan, I appreciate your response, however, if you could actually review the notice itself, you would definitely know than no computer could have come up with the figures in the notice. Just trust me on this one. The more I review it, the more I chuckle because it is plainly idiotic. Anyway, the taxpayer and I are to be roommates next week when we chaperone her child/my grandchild at cheerleader camp in Florida. Hopefully, it will take a simple phone call to straighten out this matter. At least I'm seeing the notice as amusing today....big difference since Saturday! Take care, Cathy

I agree that the return itself is spit out of the system, however, the computer doesn't actually generate the CP2000 notice....well, actually, it does generate the NEED for a notice, but from every incorrect CP2000 notice my clients over the years have received was due to an IRS employee further examining the return and including additional items not reported correctly... or so the IRS employee thought so anyway! That's when the aggravation sets in! Years ago, a new client brought me an audit letter as her preparer would not respond to her messages left on his recorder. I helped her get her records in order and went with her to the audit. What the agent told us was as she had neglected to include a small amount of interest income from a life insurance policy on her return, her return was reviewed before sending her a bill for the additional taxes due. She said the employee reviewing her return noticed a very large employee business expense deduction taken on that return. The IRS employee didn't realize the expense taken was due to the fact that the taxpayer personally owned the school bus that transported students to and from school. The auditor stated that had they realized that fact, all the taxpayer would have gotten from them was a bill for the taxes due to the under reported interest. The above is just one example of why I feel the entire return is reviewed before the CP2000 notices go out. I have many instances over the years that have confirmed to me of the actual employee involvement prior to the notices being mailed out. Another reason to make sure every item if income appears on the return! More and more correspondence audits are now being used due to budget restraints. These CP2000 notices are beginning to look like correspondence audits as well as billing for unreported income.

mcb, I think if I were you I'd change my phone number and/or head for the hills! Especially since the couple had been separated for three years, I think (and it's easy for me to say this now after hearing what you have gone through) I would have referred both of the clients back to their attorneys for clarification from the court (and to give the court tax law information) as the court order does not follow IRS codes, and a local or state divorce decree certainly can't trump the Federal tax code. The splitting of employment and self-employment income absolutely makes no sense at all, especially as they are each considered "single" for the tax year as their divorce was final on November 29, not to mention the fact that they had been separated for three years to boot! If the couple had not gone through a property settlement prior to the end of the tax year, then I agree that possibly the income from the rental properties might need to be split accordingly (unless one of the two actually received 100% of the rental proceeds). Insofar as the itemized deductions are concerned, a taxpayer does not have the right to claim any amount unless he/she actually paid it so it seems as the court should not have any concern in that matter anyway. Your situation sounds like a good case for the Taxpayers Advocacy program. I would turn the entire matter over to them. I may be wrong, but if one spouse received a refund he is not entitled to as you suggested, his return might need to be corrected according to IRS codes, rules and regs. Your case sounds like one that can be sorted out by a Taxpayer Advocate as he/she should have the proper connections to find out if both returns need to be amended to follow IRS rules rather than a court order. I wish attorneys and judges would obtain the proper knowledge in regard to tax laws before allowing such orders to be handed down. Take care, Cathy

Clay, In all my years of preparing returns, I have had only one 1099-Q. My clients also got a notice whereby it made it appear that an error was made on the return and the "error" would cost them over $5K to correct. So, the answer to your question is yes, an attachment added to the return explaining the formula used in computing the taxable amount of the 1099-Q would be the best way to handle such a distribution. I know if I get another one, I will definitely have an attachment with the original tax return. Take care, Cathy

Thanks to each of you for your responses to my original post. Each of you made a bad day a lot more tolerable! Taxed and Tom, I don’t know if you two are serious or not, however, you both need to get together and perform live in comedy clubs. You both would find instant stardom! No joke!!!! Funny thing is that I agree with both of you! You both made me laugh today and lately my laughing doesn’t come easy! So, I thank you both! John, I appreciated your input very much! Part of the reason I posted my original rant was to see if these type situations are about to become the “norm”. I’m afraid we might be beginning to see a trend occurring. I just wonder if someone is enjoying the extra work they are creating for taxpayers or preparers or if it is simply a matter of incompetent employees. Both thoughts are worrisome. Even more concerning is the fact that especially older taxpayers have a tendency to pay any bill they receive from IRS as they are horrified of owing IRS anything! It is very hard to believe that amployee who has the position of correcting a tax return lacks the knowledge to check the existing Sch D in a return for a $275K sale prior to sending the taxpayer a bill for not having reported it. I feel like you when you stated you had “no idea why they missed it”. Sounds suspicious to me. Jack, you probably hit the nail on the head with your statement that the administration wants the public “to feel as much pain as possible….” Another scary thought, but what else are we to believe? Ms. TabbyKats, I’m with you on changing my policy also. If a simple oversight will cause as much worry and grief to my clients (and me) when the computer finds they left off an item on their return, they will be forewarned and encouraged to go ahead and pay to have the return amended before IRS’s computers finds the unreported item of income and thus receives a bill for much more than the omission itself. It’s simply not worth it to ignore an item any more even if the resulting tax is $1. The first year that the $3,000 exemption for public safety officers came into effect, my brother and sister-in-law got a CP2000 telling them they made a mistake on their return to the tune of $3,000 in taxable income due to the 1099-R and ALSO they “made a mistake in calculating their taxable social security”. I would have rather personally received a letter saying I owed an additional $10K on my personal return than these two people to receive a letter telling them they owed an additional $ .25. Anyway, I placed a call and right away the lady I spoke with told me that their computer system was not yet set up to read the “PSO” that appears when there’s an adjustment (IRS has since corrected it) for a public safety officer. I then asked her why the Lump Sum Distribution wasn’t recognized on the Social Security received for that year. She instantly told me that there is no reason why the employee should not have seen that it was a Lump Sum Distribution and she relayed her aggravation about the situation to me during the call. That is the reason (in addition to other calls I have made is that I feel whenever numbers don’t match up during the cross check of income statements, an employee takes over and reviews the entire return before notifying the taxpayer of the additional taxes that are owed.) Therein lies the problem….are the employees really not literate enough about the tax code to perform his/her job or is it a “game” they have begun to play to occupy themselves as computers have pretty much taken over their positions. jainen, I understand where you are coming from as I also don’t mind a tad bit of incompetency as it came in handy approximately 35 years ago on my personal audit. I had used the $5,000 death exclusion for part of the taxable income I received when my father died. Before the actual audit, I discovered that the death benefit exclusion ended the year prior if memory serves me correctly. When the auditor asked me about the $5,000, I threw out some code citings, etc.. in a matter of fact tone. My heart dropped when she told me she had to talk to her supervisor about the exemption. Approximately 30 minutes later she came back and told me that I was correct (I’m sure she had a good coffee break). A “tad bit” of incompetency is different from total incompetency. I wish you could see this correspondence my clients received. The more I think about it, it HAS to be a “let’s aggravate the taxpayer and preparer situation”. And before you say it, I know, it could be a pay back to me from the Death Benefit Exclusion that had expired. This one is not going to be handled by a simple phone call. In fact, I don’t trust myself to have a live conversation with an IRS employee regarding the garbage my clients received. As always, thanks for “the other way of looking at things” in your responses. Take care all, Cathy 6/3/13 Just edited to change the font. Sorry about the "calligraphy" if anyone else tried to read my response on their iphone. I don't know where that font came from....I know it made me nauseated trying to read it!

Sorry, but I just have to vent! I'm gravely concerned about the competency of IRS's employees. It's bad enough that I recently had to teach a supervisor and an auditor the difference in accountable and non-accountable plans and when employee business expense deductions are allowed recently for a correspondence audit, however, the letter one of my clients got today totally blows my mind! From what I can tell, while IRS did the matching of 1099's to returns, my clients did in fact not tell me that they have had a very small amount of dividends each year since they were married. Finally in 2011, the $19 in dividends did make a $3 difference on their Federal return. It appears that when the computer spits out such a return for not including an income item, then a person (IRS employee) takes over and reviews the rest of the return. From reviewing the many changes to the return that are in the CP2000 notice, it is very, very, very evident that the employee absolutely does not know what he/she is doing! I always try to figure out before we contact IRS what they did wrong and I've been playing with figures all afternoon. This is what I found: Spouse received an IRA withdrawal due to the death of one of her parents. The withdrawal was coded "4". The total withdrawal of the IRA PLUS the amount withheld in Federal taxes were BOTH added to the spouses WAGES....thus they are saying that the spouse's wages were underreported on the return. The withholding on the IRA withdrawal that was included on Line 62 is gone.....poof! It was noted in the CP2000 letter than an error was made on the total withholding. (Remember IRS added it in with the spouse's wages as INCOME). With the additional income (the IRA was already reported on the original return) added to the couple's income, now their education credit is lowered because they are over the threshold. Now my clients have a bill for over $1,000. This is by far the most pitiful case I have ever had where an employee really screwed up a return....certainly not the ONLY time, just the most pitiful job of screwing it up! I will follow up and get my clients to send in the $3.00 they owe (+interest...lol), however, after we receive the final "case closed" correspondence from IRS, I will forward the whole package to the Ways and Means Committee who I believe is over IRS. If not, I will find out exactly who to send it to. I have often complained about my local H & R Block office, but from what I've seen lately coming out of the IRS office itself, I do believe H & R is gaining ground on them and at a fast pace also! Thanks for listening! I feel better now!!!!

I use a standard large mail box that we installed a locking mechanism with a key on the top of the front door. A drop off flap was installed on top of the box that can be lifted for clients to put their items in it. I made a sign that I put on the front of the mailbox that reminds clients to raise the red flag so I will know they have dropped off their info. We made a wooden stand for the box, then attached the stand and mailbox to the left of the office entrance opening. Very inexpensive (if one has the tools, etc..) and clients seem to love it. My "real" mailbox is located on the road, and my office is located on a private road back behind and to the side of my home. No problems at all, however, it is beneficial to live in a rural community where neighbors still watch one another's property. Before the mailbox, I simply put a file holder on one wall of a room located under the carport. No lock, etc.. but clients seemed not to mind. I do feel much better with the current locked mail box.

I've also done as Maribeth for over 30 years now and have NEVER had it questioned by IRS. I also use Sch C (not Sch C-EZ) and back out the figure under "other expenses" and give the correct location of the income as it is reported on the return. Has worked each and every time! ;)

With no time to read the other posts, I would say that program crashes (still) when needing to re-create an e-file as of 5-15-13 is not acceptable and for sure is a sign that the program is not "fixed". Take care, Cathy

If any of you find that you need to file a Louisiana extension today which is the last day, of course, please see my post under "General Chat". Basically the quickest, and safest way today to file an extension is directly through the DOR at the following website: https://esweb.revenue.louisiana.gov/OnlineTaxExtensions/ Take care, Cathy

Just got off the phone with ATX customer service. For some reason, ATX did not recognize that Louisiana has until 5-15-13 to file for extensions and had shut down the extensions for the Federal returns in addition to all states. I was not able to create a Louisiana extension as it gave me several different errors as to why I couldn't do it (none of the errors made any sense). The lady I spoke with was going to have the programmers "turn on" the ability to file Louisiana extensions, however, when I was on hold with her, I went ahead and filed mine (which included a payment) at the DOR's web site. It was very easy to do (which surprised me, of course)! I told her to not worry about my client's extension as I would do the same with his. If any of you need the web site address, click on the link below. You can also call customer service and get them to fix Louisiana's program....I didn't want to take the chance that it would be done properly and in a timely manner...like right that very second! https://esweb.revenue.louisiana.gov/OnlineTaxExtensions/ Take care, Cathy

Mike, I'm very interested as I've used this company's books for years and am anxious to see what offer they may have for their tax software. Please keep us posted! Thanks, Carhy

" I am upset because this individual was putting the blame on me... he was saying that he was also debited that same amount which does not make any sense whatsoever." FTS13, How on earth did your client feel you were to blame? You have already gone beyond your call of duty in helping the client find out what happened. If that client was mine, he'd be fired in a heartbeat....sure after this is all over, he MIGHT apologize and/or thank you for your help, however, I'd NEVER give him the chance for something similar to happen again. He doesn't deserve to have his taxes prepared by you again! It's not necessary to fire him now....just turn him down when he calls you for an appointment next year. Take care, Cathy P.S. Also, the whole situation sounds "fishy". Dump him!

Again, a different view of a situation that had I not sent in all the actual receipts, log books, etc.. with double tapes to prove each expense listed on the 2106 originally, your view, jainen, definitely is worth remembering. Then again, as NONE of the expenses were deductible per the IRS agent, I wonder if she even looked over the various receipts, log books, etc....probably not, but as you suggested, she might have been so embarassed that she didn't see the forest from the trees.

I believe open enrollment begins the later part of 2013. Somewhere buried in my office is info that our first intro to this hornets nest will occur with the 2013 returns. Then again, all we really need to do is find the woman in the HR Block commercial this past season....you remember the one who had read the entire law and was available to explain it in detail to all of her clients? DIL works for BCBS in Marketing and when I see her after she gets home from work every day, all she does is shakes her head when I ask her how is "IT" going!

KC, I think you just hit the nail on the head as to my aggravation! I don't charge my clients in those type situations. Now that I think about it, perhaps I need to change my policy...I'm sure I'll still be aggravated, but probably not as much. My clients ALWAYS ask me how much they owe me and whatever I would charge would be well worth it to them rather than paying IRS's bill. And, as usual, THANKS! Take Care, Cathy

How true, KC! I recently had a correspondence audit where the taxpayers were told to prove expenditures reported on Sch A for employee business expenses from Form 2106. During the height of tax season, I pains takingly sent back meticulous records whereas every single expense was documented completely. The taxpayers received a response stating that none of the documents sent in my reply changed the initial amount IRS calculated as them oweing if the expenses were denied. After getting POA's signed and faxed back followed by at least 4 calls initiated by me, I finally got the long awaited call from the actual auditer who sent the original correspondence to review with her the proof of the expenses claimed on the tax return. I would speculate that the biggest issue of an audit of Sch A concerns the employee business expenses from Form 2106. If it isn't the biggest issue, I'm sure it ranks in the top 3 issues at least. In my talking with the auditor, It dawned on me that she did not know the difference between an "Accountable" and "Non-Accountable" plan dealing with payments certain employers make to their employees for certain employee business expenses. As you know, when an employee documents with receipts amounts employers have provided for travel and other business expenses and the employees return the excess, if any, of the advance the employer has made, then that employer is said to have an "Accountable Plan", thus those expenses ARE NOT included in Box1 of a W-2 as taxable earnings. "Non-Accountable Plans" are just the opposite of "Accountable Plans". Under a Non Accountable Plan, the employee is advanced an allowance for their miscellaneous travel and other employee business expenses, however, as the employee does not have to account to the employer with receipts and the employee is entittled to keep the excess, if any, those funds advanced to the employee are TAXABLE and included on Box-1 of the W-2 as taxable earnings. KC, I'm certain you know the difference between the two plans...the above is strictly for those who might read my post and not know the difference. I'm sure most of us on this forum do know the difference so just consider the above is for a newbie who stumbles on to this thread. Back to my point.....(the conversation with the auditor when I realized she had no clue) she told me that since the employee was paid for those business expenses, she was not allowed to deduct them on her tax return....period. She remarked that she has proof from the taxpayer's paystubs that she was indeed paid for those expenses. She was positively correct! However, on those same paystubs, it was very evident that those expenses were added to the taxpayer's "base salary" and were included in Box 1 of her W-2 as taxable earnings. I then told her to look at the "base salary" plus the "travel allowance", minus out the cafeteria items and the result would be the taxable earnings as the checkstub indicated. She still said that the reason why the taxpayer could not use those expenses on Form 2106 and Sch A is because she was paid by her employer already for them, thus disallowing them as deductions to her income. At that point, I realized she didn't know about the difference in Accountable and Non-Accountable Plans, neither did she have a background strong enough to be auditing said returns. At all times, I must say the auditor was always very, very polite. She put me on hold so she could talk to her supervisor and even wrote down "Accountable and Non-Accountable Plans. She came back a couple of minutes later and relayed that her supervisor had the same opinion she had. Thank goodness, I am now over 60 and have mellowed out over the years. Had I been younger, I'm sure my reply probably wouldn't have been as carefully stated. I then reiterated the difference in the two plans and told her to take her time if she needed to research some more, as I have known about these type plans for many years and I'm sure it was just that she (and her supervisor) had never been exposed to them before. She continued to research, checking back with me every 2 to 3 minutes to ask me if I was o'kay with continuing to hold. I reassured her each time to take all the time she needed. Finally, her last time to speak with me was to tell me she was closing the audit as a "No Change Audit" as she had found that I had prepared the return correctly. Again, she was one of the nicest agents I have ever spoken to. What concerns me though is as you stated, people will pay a "bill" if the amount of fighting is for less than the bill itself. To add to your statement, many clients (especially elderly ones) will pay any bill they receive from IRS even if it is their last penny as many are scared (terrified) of IRS. My intention of this post is also to let everyone know that evidently undereducated IRS employees are being hired in the auditing section. As a tax professor at LSU once told me, NEVER, NEVER give up on your theory unless someone can prove you wrong. This was after I had disagreed with him on a matter regarding one of my clients. My client had given me the professor's name and phone number and asked me to call him and discuss a particular situation with him. To appease my client, I did make the call, however, never expecting the outcome I got. At first the professor told me I was wrong, however, after he researched the situation, he called me back to tell me my theory was correct. It was a very valuable lesson at a very young age. That professor's words have been the force that has motivated me over the years to never give up unless I was proven to be wrong. Since that recent correspondence audit, I now believe competency testing is a must, however, I now also feel IRS employees (especially auditors and their supervisors) should also have to be tested and have the proper continuing education as well.

Tom, It's highly possible that there is a debt out there for either or both of the taxpayers. You might want to give the taxpayers the debt telephone number and suggest that they call to find out if their refund is possibly being held up due to a debt issue. Just a thought....good luck! Cathy P.S. Have you tried calling the e-file help desk? I have found in 1 out of 20 calls, you get an employee who is interested in help solving such a mystery! Who knows...you might just luck up!