BulldogTom

The problem is, every tax return is properly filed. In 2003, it was proper to "Play King David and split kids" and we all did it to maximize the tax returns for our clients. To not do so would constitute malpractice in my opinion. While the practice was legal, there was a great cry of outrage (I wish we had the ATX archives to go back to right now). That is why the rules changed in 2004. They were further changed in 2005 with the Uniform definition of a Child. The taxpayer has never taken an improper position on his tax return, except for in 2006 when they should have filed MFJ, they just did not know it. The way you are portraying my client is not correct. They went to tax professionals for tax advice and followed the professionals advice in filing their tax returns. This couple did not intentionally file false returns. They were all properly filed. They IRS has denied the taxpayer to claim dependency for his natural born child that lived in his home that he provided since the day the child was born. Show me a form where the IRS lays out the exact proof that they will accept when making a dependency determination? They give a taxpayer 15 DAYS to respond to a letter saying prove this child lived in your house for the entire year or we will deny the dependency exemption and all that goes with it. Have you ever tried to prove a child lived with you all year to the published standard of the IRS? (oh yeah, there is no exact guidance on that, just some "suggestions"). The clients are not the sharpest individuals, but he works hard, and he does what he can to support his wife and 4 kids, one of which is special needs. As for new information, 2003 is hard to get any information, but we will be providing birth certificates showing the the couple as mother and father of one child. I will also present the mother's testimony in writing under penalty of perjury that her other children lived in the home with her and the now step father. In 2004, I have the lease from the landlord listing the children, along with the birth certificates (second child born to both of them in this year) and a local government services agency report listing all income by month for the family unit which names all of them. I have the same information for 2005 and 2006, and medical records showing shots and checkups for the kids. None of this was given to the IRS because the client did not get adequate representation. So please, the clients are not bad people, they just don't know how to prove to the IRS that they have children living with them. Tom Lodi, CA

Jainen, There is an IRS publication 3598 on Audit Reconsideration. I read it, and I am still thinking of going that way. It says in part "IRS Accepts an Audit Reconsideration Request if: (1) You have information that we have not considered previously which might change the amount of tax you owe, or credit you believe you are entitled to." I have never gone down this road before, so I am hoping someone else has. Since the IRS did not have all the information when they made the determination, I think this is my best shot. A very detailed, comprehensive letter attempting to prove that the taxpayer is in fact eligible for the denied credits, complete with supporting documentation, will hopefully get me an audience with the auditor. If any of you have ever tried audit reconsideration, please post your experiences. Tom Lodi, CA

History first, then the question. I have a client in a real mess going back to 2003. Young kid, been living with his girlfriend since 2002. She brought 2 kids to the relationship. They have since had 2 more. They married in 2006. (please - no moral comments, it is what it is and I have taken the engagement) In 2003, she filed single with EIC for 2 kids and no dependents, IRS did not challenge. He filed HOH, 4 dep, CTC for 3 kids (1 his and hers, 2 hers only) EIC for 1 child (his and hers). IRS audited and disallowed dependency, CTC and EIC citing duplicate numbers on another tax return (hers). He should have fought, but did not know how, and preparer (local independent) was not willing to help. In 2004, she files HOH with 2 dep (hers), CTC and EIC. IRS does not challenge. He files single, 2 dependents (his and hers) CTC, and EIC. IRS audits and disallows dependency exemption, CTC, and EIC. Kudos to HRB for at least trying to help by writing a letter, but there was no follow up and the IRS did not change the result of the audit because they did not provide sufficient evidence. In 2005, she files single but claimed as dependent on another return. IRS does not challenge. He files HOH, 5 dependents, 4 CTC, EIC. IRS audits and disallows HOH, dependents, CTC and EIC. Taxpayer again gets a letter written by HRB challenging the audit, but did not provide proper documentation and IRS did not change the audit. In 2006 they go to JH and file her HOH, 2 dependents, CTC, EIC. IRS does not challenge. He files single, 2 dependents, CTC, EIC. IRS audits. They married in September of 2006. (this is the point where I enter the scene) 2006 audit is not complete. I have made contact with the auditor. I am being polite when I say she is not the sharpest knife in the drawer. Because of this, and the fact that I need to amend the 2 returns to a MFJ, I have asked for the audit to be moved to the local office and be conducted in person rather than by correspondence. What I understand so far, and this is very hazy from the auditor, is that what remained of 2004 refund was used to pay 2003. 2004 still has a balance due, and 2005 is 0 balance (refund never paid). Taxpayer claims he did not get anything but $867 from IRS for 2003. IRS showed 3600 balance due (but the auditor could not tell me if he was paid the refund - she kept saying 2004 was taken for either back child support or college loans - both of which are absoluty not true). My request to move the audit to the local office seems to have ticked her off (I swear I was very polite, and it is a legitimate request to want to work face to face because of the documentation that I want to provide and explain). So, here is my question. How do I go about getting the prior 3 years reopened for audit, as well as consolidating them with the 2006. The issues are exactly the same in every year except 2006 (where I have the 2006 MFJ amend to broach with the auditor). 2003 and 2005 were handled in Atlanta, and 2006 is there right now. 2004 was handled in KC. My plan is to write a letter to Atlanta and to KC and ask for audit reconsideration. Once that is done, I will ask to move the audit to the local office (or should I include that in the letter and ask to open and move to the local office all in the same letter?) If the service is not willing to re-open, what are my options for tax court? I don't have a valid 90 day letter on 2003, 2004, or 2005. Because the IRS applied payments to 2003 in 2005, does that leave the statute open (2 years from the date the tax was paid) for 2003? Would I have to file claims for refund for each year, make the IRS deny, and then file the claims? BTW, I believe that I have all the evidence to establish dependency and all the credits that go with it for 2006 and 2005. It gets slimmer in 2004 and 2003, but I do have the lease agreement listing each child in 2004. They lived in another home in 2003 and are trying to get the landlord to confirm that all three kids were in the home the entire year in 2003. We have immunization and doctor records also. Thanks in advance for your comments, recommendations, and thoughts on how to proceed. Tom Lodi, CA

I like you OldJack, but this time, I think you should reconsider. Your comment seems to me to be the same as saying "I don't have medical insurance because I have not been sick since the 1980's." A UPS is a good insurance policy in my book. Just my humble opinion. Tom Lodi, CA

Jainen, I respect your opinions, so I would like to ask what you think about this line of reasoning: Since a "sale or other disposition" is required for imposition of tax under the code, could one not argue that the transaction never was completed. Thus, if there is no quid pro quo as the taxpayer did not receive something in exchange for the property given up, there is no "sale or other disposition". Then we have only a loss (casualty or investment) to deal with. The reason we use the QI in these transactions is so that we do not touch the sale proceeds so that we don't complete the transaction before the exchange is completed. I may be stretching this a little, but I think this may be an argument that I would research in depth. BTW, I was thinking along the same lines as your post before I thought of this. Tom Lodi, CA

Let them come on the site any way they want. I don't care if the CEO of CCH comes on incognito, he can see whatever we say. Might make a difference. Might not. Tom Lodi, CA

Same as for the National bank. Must be a bona fide debt secured by the residence. (in other words, mom has got to be able to forclose, or it is not a bona fide loan). Should be in writing. Must show the lender information on the Schedule A since there is no 1098 from mom. Tom Lodi, CA

She is going crazy. Football practice has started and now that my oldest is in Freshman football, she is driving to two places for practices everyday. My oldest boy, Jonathan, is 13, 6'2" and 215lbs. I took him to the Fresno State football camp this year, and despite being one of the youngest kids, he was not overmatched by the older kids. I am letting him lift weights for the first time, and he is starting to put some real muscle on his body. The youngest son, Patrick, moved up a level in youth football and is not happy that he is down on the depth chart. He can't wait to get into pads so he can start "taking out the kids above him". Business is starting to pick up now that we found a good office location. I am very hopeful for next year (our tenth in business). The ATX thing has me worried, and I need to decide if this is the year to make a switch to another software or hope that ATX is in this for the long run. The bigger my client base gets, the harder it will be to switch. I was so happy with ATX last year because everything worked perfect for the program, banking, and efile. Other than that, I think we are on the right track with the business. How are the kids? Tom Lodi, CA

Thanks for sharing. I saved that file. Never know when that issue might come up. Tom Lodi, Ca

I don't think our ponytailed friend is MonkeyMan. But I am guessing that Monkeyman knows SweetWillie, and could probably walk down the hall and invite him to lunch? Just a thought. Tom Lodi, CA

If I do it that way, how will they know that I have combined 2 returns? I know you know what you are doing, so please be patient while I ask what may seem elementary questions. Thanks Tom

New clients come to me with IRS problem. Being audited and IRS is disallowing EIC, CTC, etc. Wants me to represent because they are their children (named on the birth certificate) and they lived with them all year. Pretty simple, until I look at the letter and the return and her name is not on them. He filed single. She filed HOH. They say tax preparer told them to do it that way (Jackson Hewitt). They also say they told preparer they got married in 2006. Not sure if I believe them or not, but that is beside the point. Do I amend the same way as I would if they were MFS and wanted to go MFJ? Just combine all the numbers on the two separate returns and put in column A on the 1040X? Then put copies of the two tax returns with the 1040X and hope the service does not hose them both? I already have the verbage for the explanation ready to go, so that part is not troubling me. I am pretty sure that is the way, just looking for confirmation. Thanks in advance. Tom Lodi, CA

I want in. Pick me! Pick me! Don't leave me off the team like they did in grade school. Seriously, if you ever decide to put a program together on a relational database platform with the functionality of ATX, I will be right in the front row to sign up and beta test it for you. Since you have another year before ATX software will go away (just my opinion - no facts behind it), you might be able to get up and going for the 2008 Tax Year. Unless you have already started development and could have something out for 2007 tax returns? Tom Lodi, CA

Wow, Eli you need to think about this. Are you ready to go full time into tax practice? And are you ready to bring in someone who you will be dependent on for the success of your business? The above advice is important to listen to, and I believe Mike has given you excelent advice. But the bigger question centers around your life, family, carreer, and mental health. Is your wife up to this change? Are you? Can you sustain yourself for the first year on your savings if this takes a year to generate the cash flow you need to pull it off? Do you have access to a credit line for business expenses? I am sure you know this, but I will remind you of the most important rule of business - CASH IS KING, if you don't have it, or access to it, you can die in bankruptcy with profits on the books. This deal will take some cash to make it work. You will have to sit down and figure out how much and when and for how long. What a great opportunity Eli. Be careful my friend, and take your time deciding if this is the opportunity that will take you where you want to go. Send me an e-mail if you want to talk about this some more. Tom Lodi, CA

Melvin, If you were to open shop, I would be right there with you. Might you consider a joint business venture? We could call the software "two buck Tax" (that is a take off on the "two buck chuck" wine that recently won a gold medal in napa valley). We could get lots of customers, and then take CCH or Intuit to the cleaners when they buy us out. What a plan, your brains, your work, OUR profits. You ready to go into business? Tom Lodi, CA

I am waiting for the Airplane ticket vouchers to come back. Then I will renew. I have a toaster, coffee pot and microwave (well, I COULD use a new microwave, mine stopped spinning the food in circles and I don't know why). I am afraid that what we are going to see is the same thing that happened to my total tax guide. I ordered it, and they sent me the ATX Master Tax Guide instead. Fair enough, since they gave it to me at the same price. Now, they want me to buy the Master Tax Guide that I "ordered" last year for twice as much. Beware that we will be seeing ProSystemfx in our mailboxes this year "at the same price as MAX". That good deal will a one year thing, then we will be stuck with a company that could give a crap about us, now that they have killed a good, low cost competitor. If we stay for the higher cost, they win, and if we leave, there is not many places to go. I fear it will not be long until the big guys swallow the last of the little software companies and we have to choose one of the big ones or go out of business. OK, I am stepping off my soapbox now. Tom Lodi, CA

That is very interesting. I heard that HSBC was completely out of the Tax Return Banking. This is the first I have heard that they will be back next year. Tom Lodi, CA

Please do not respond if you are going to bash RALs. I don't like them, but they are a necessary evil to level the playing field with my competition. Do any of you know what you are going to do about bank products if you renew with ATX? I was with Republic for 3 years with ATX, but it never worked well. ATX and Republic did not play well. I finally switched to HSBC last year, and everything went perfect. But lo and behold, there will be no HSBC this year. I loved Santa Barbra when I was with ProSeries, and I see that Drake has a relationship with them. The RAL crowd is the most fickle of them all. They will bail in a heartbeat if they think their check is going to get held up even one day. There are some of my clients that just want to pay me out of the refund, and while I will hold a check until the refund arrives for some of them, I like the security of knowing that I will get paid when the refund is funded. I need a solid bank to work with. What are the rest of you who offer bank products going to do? Do you know which banks for sure are going to be offered by ATX? Any word on if they will be integrated like HSBC in the ATX software? Thanks for your input. Tom Lodi, CA

I met with the Drake people at Super Seminar last weekend. They should have put better salespeople in their booth. I was ready to switch until they opened their mouths, now I am not sure. Can you tell me what features in the software (not the company) you thought were compelling to make the move from ATX? Price is not a factor for me as Max and Drake costs are so similar that I won't notice the difference. I have loaded the 2006 Drake software and started the setup process and will begin working returns in the next few weeks. I would appreciate your comments. PS, now I think I am going to forego both the Drake and ATX early discounts and wait until November. I am not ready to trust ATX, or to switch to a new software yet either. Tom Lodi, CA

Thank you Maribeth. Your help is appreciated. Tom Lodi, CA

But there was no carry forward on the 2005 NOL. I took the entire amount back to 2003 and carried nothing forward. So there is no worksheet to move forward into 2004. Now I am carrying 2006 back to 2004. That part is easy. My question is what to show for the 2005 year on the 1045. I think you are saying to show the 2005 amounts on the 1045 and adjust nothing. Then I will carry the 9K forward to 2007, and I will use the NOL Carry Forward worksheet next year? Am I understanding you correctly? Tom Lodi, CA

Thank you Maribeth. I think you answered my question. But please allow me to understand what I thought you meant for me to hear from what you said? So I will show the amount of the NOL that can be used on the column for the second preceeding year (2004), and in the next column (first preceeding year) I will show the originally filed 2005, with no adjustments? Then I will attach (per KC's post below) the carryforward worksheet? Am I on target? Thanks again for your help. Tom Lodi, CA

I appologize for not having done the research yet, but I thought I would ask here first since I won't get a chance to look it up for a few days. Client has an NOL in 2005. I carried back the whole thing to 2003. All good, no issues. Client has already spent the check. Client has an NOL again in 2006. I carried most of it back to 2004. 9K left. Since 2005 was also an NOL, what do I show on the 1045 for that year? Do I leave the 2005 numbers as originally filed, and carry the amount forward? Or do I leave that column blank, and carry forward (I think that will make the IRS computers go tilt)? Any help would be appreciated. I have put this on the shelf since the end of tax season and need to actually get it done sometime this summer. But I have had more fun building a redwood deck and installing a hot tub in my back yard. Tom Lodi, CA

I already sent the snail mail version, but I do appreciate the information. If I am with ATX next year, I am sure it will be useful. Tom

OK, I have one client that I am putting on Extention. I was going to try to e-file it, but I could not get the signature, so I mailed it. Could someone walk me through the process of e-filing an extention without the client to sign the form? And since I use Practitioner Pin for all my returns, how do I go about removing the pin? Any help appreciated. Tom Lodi, CA