David1980

I had several phone inquiries as to whether they can claim the credit for a future home purchase. All but one failed to make appointments/do their taxes with me. My guess is a ton of abuse happened. Just like EIC fraud, a lot of taxpayers probably lied about buying a home and there's probably a handful of preparers who simply prepared fraudulent returns.

Here's a good source for looking up field (sequence) numbers. http://www.irs.gov/efile/article/0,,id=186111,00.html That's the 1040. They have them for other forms as well. http://www.irs.gov/efile/article/0,,id=204167,00.html It's especially helpful for reject code 10's because those could be just about anything, but if you know what the field is and what it corresponds to you can often figure it out. :)

When you call the IRS for free tax advice, you sometimes get what you pay for. Preparer it correctly, ignore the bogus info.

Within publication 17 you'll find a chart in the section on education credits. It discusses who can claim the education credits. The important thing to note on this chart, is that it covers the situation where the parent does not claim the dependent even though the dependent can't claim their own exemption either. Which implies that the parent could simply not claim the child. If they do claim the child, I think they'd end up with the EIC and CTC even if you prepared it without, the IRS would probably "correct" your error.

Actually the price of the software itself may not have as much impact as you would think. A lot of the revenue for a tax software company is through bank product fees. The ~$30 bank fee often gets a decent rebate amount to the tax software provider. See this thread for more evidence of that: http://www.atxcommunity.com/index.php?show...l=bank+products You'll note the emphasis on bank products there. In fact, some tax software sales people will ask you pretty quick how many bank products you did last year.

Makes you wonder what she enters for the address on the 5405, since they obviously don't have a new address yet. If she's using the same as the 1040 address, that's a huge red flag. I mean you have this address that hasn't changed for a few years and all of a sudden it shows up on a first time homebuyer form as a new home for you? Possible, I mean maybe you rented the home and then bought it in 2009. Unlikely though - and I'm hoping all of the clients get a nice audit on that. Unfortunately there has always been people like that, people who will take bogus deductions and preparer fraudulent returns. The risks are generally known, but people either don't think it'll ever happen to them or they don't care, so long as they get the money they make today they'll find some new job in the future.

Exactly. A refundable $8000 credit is for sure going to get abused, just as much as EIC does (perhaps more?) As a taxpayer I sure hope the IRS audits a ton of those first time homebuyer credits.

If you're going to efile it with corrections, it's 5 calender days. That means the 20th is the deadline. I'm not sure what the time of day on the 20th is though. Seems in the past I've had up until 11AM to transmit, or it be considered late.

It seems to me that the bank fees are somewhat standard in this industry unfortunately. For example, I know that even the $30 "bank fee" charged by santa barbara often gets rebated to the tax software partially. So you can actually end up with the software making even more money on a bank product than you realize because it's camouflaged as part of the bank's fees. Some software companies flat out will ask you when you're talking to their sales people "How many bank products do you do?" because they make a chunk of change on them and can negotiate the price based on bank products. So you will need to go beyond simply asking how much the software charges for the bank fees, because often they can't even figure out what they're making per bank product due to the complex agreements between different banks. Instead, you might ask questions like "If I go with Santa Barbara, how much would the total of all fees be on a $3,000 RAL?" They may have a chart or something. So pick one bank to comparison shop with (whatever bank you plan to use probably) and be careful how you phrase the question. :)

Unless there's a gross miscalculation, the EIC for someone with no kids wouldn't be $4010. :)

If it's a gain it would go to schedule D. If it's a loss, it's just the 4797. See line 7 of a 4797. "Individuals, partners, S corporation shareholders, and all others. If line 7 is zero or a loss enter the amount from line 7 on line 11 below and skip lines 8 and 9. If line 7 is a gain ..." It will carry from line 7 to line 11, from line 11 to 17, 17 to 18b and 18b to 1040 line 14. All deductible in the year of sale.

Failure to file is something like 5% of the tax liability per month maxing out at 25%. Failure to pay is more like 0.5%. So you avoid the big penalty and only pay the small failure to pay penalty.

Normally rental property foreclosures don't matter too much. Let's say someone buys a rental house for $500,000. The house is foreclosed on when the fair market value is $250,000. To keep things simple, no depreciation & no payments (so amount owed is still $500,000.) Buyer is personally liable for the debt. Normally, the difference between FMV and balance outstanding would be reported as ordinary income on Schedule E. So there is $250,000 income on Schedule E for cancellation of debt. There is also of course a sale of rental property. Cost is $500,000. Sell price will be the FMV since FMV is smaller than the balance outstanding on the loan. $500,000 cost $250,000 sale price, $250,000 loss showing on 4797. This results in a net of $0 on the tax return. If you exclude the debt due to insolvency, you would then have a reduction of tax attributes. If the rental home was the only non-personal asset and there's no NOL's, business credits, etc... Would you not then have a Schedule E with no cancellation of debt and a sale at basis $250,000 and sale price $250,000? The result being exactly the same, except an extra form used? (I'm not sure on that, so it's a real question.)

Well it's not earned income, but the pension was only $3853 and the EIC was based on $10,000 of earned income. Even if the preparer did include the pension as earned income (I doubt it) when calculating EIC, there would still be another $6,000 of earned income for EIC. So I still do not see how the presence of $3,853 of pension income would disqualify the taxpayer from EIC.

Doesn't make sense. Pension income isn't investment income, so that wouldn't do it. It could cause them to lose EIC if the pension income pushed them past the AGI limit. Age obviously isn't an issue, with $4010 of EIC they have to have a qualifying child. Does the letter from the IRS actually say it's because of the pension income, or is that what the taxpayer says?

A FD 010 is normally a formatting issue in the efile image. It's basically a catch all reject for bad formatting (letters in number field, etc.) So without knowing exactly what was causing the FD 10 it's pretty impossible to say if it affected a lot of returns or very few returns. And it's entirely possible the update just makes it harder to do a user error (for example, if prior to Ver 34 you could type letters in the phone number box the description of the fix would be accurate, but very few returns would have had the reject.) Or, Ver 33 may have broken 4868 good and all filed on that version rejected. If the extensions got acks, they weren't rejected so you shouldn't need to refile.

Agree, in this case you can literally ignore the 1099-A completely.

Paper file?

Yeah, that's the previously mentioned qualified joint venture. If you read the Schedule C instructions you'll see they removed the instructions for filing 1 Schedule C with two SE's for all states including community property states, and that they added instructions on how to preparer a qualified joint venture return. You split the income/expenses/etc by the ownership percentage and preparer two Schedule C's. It'll be a pain until one of the software companies add a checkbox/percentage entry to a worksheet or something and has the software do the splitting to two Schedule C's automatically. (Then probably other software companies will follow suit.)

It can absolutely create a higher cost barrier to entry into the field. If you have to take a test that requires a good bit of studying you will no longer have people walking off their job at McDonalds to get a tax prep job. Nothing will guarantee 100% of preparers will be knowledgeable and honest, but these things can help.

I wasn't saying that it was acceptable or correct, just that people were doing it. The point was the IRS could have just added a checkbox to the real Schedule C to match what all the software companies did. Most people would not have even noticed a difference because it would have matched the existing method. Instead, they made qualified joint ventures and required two Schedule C's be prepared.

The IRS position would be Schedule C, C-EZ, F, or line 7 (with an 8919). See instructions for recipients for box 7 of the 1099-MISC. 8919 still has the taxpayer responsible for 1/2 the social security/medicare tax. You probably want to take a look through the SS-8 which is what the IRS would want to go along with that 8919. It gives a good idea of what kind of factors they're looking at to determine whether this is an employee or an independent contractor. So if independent contractor Schedule C. If misclassified employee Line 7 and 8919.

Although I would agree with Sasha's assessment of the likely direction based on current conditions, if they are making such decisions based on today and not considering tomorrow they are making a mistake. As more and more states look into & implement testing requirements in order to preparer taxes, a lot of the less knowledgeable preparers are going to either have to learn how to do taxes for real, or move on to some other career.

For the current tax year I can't find any instructions from the IRS indicating a single schedule C with two schedule SE's is allowed, even in community property states. It's entirely possible that they removed such instructions due to the creation of the qualified joint ventures in 2007. A move which I think was pretty stupid, why not just add a checkbox to the official form and allow the software companies to continue doing it as had become industry standard and normal in tax practices even in non-community property states. That said, there's nothing stopping a software company from including a checkbox which automatically splits it into two separate schedule C's. Why should it be a manual process when it would be a few hours of programming to get software to do it?

Based on the information here, it seems that they should have gotten a 1099-A instead of a 1099-C. You could report it like you would for a 1099-A and advise the client to call you if they get an IRS letter to explain. You could try putting an explanation in an IRS preparer note, but it doesn't seem like anyone reads those anyway. Or following the instructions for recipients on the 1099-C you could try contacting the creditor and asking why they issued a 1099-C in the first place when FMV was more than the loan outstanding.