JohnH

Talk about running around in circles. So I got back to his return today, and just for grins I decided to run the numbers taking the deduction for the $4K of travel, along with his other employee business expenses. I assumed he's going to ask what it "would have looked like" if he could take the deduction. I'd certainly ask that question if it were me. Turns out I can tell him it makes NO DIFFERENCE. What the 2106 giveth, the 6251 taketh away. His taxes would be lower if we simply reduced the Line 21 entry, but I never seriously considered doing that from the outset. So maybe the buddy pass is still a possibility....

Nobody is being very sympathetic here. I'm not worried about getting paid to prepare the return, but I've got to tell you all that you're probably costing me a few "buddy passes" for future air travel. Are you feeling any guilt?

Well this is a bit unusual. New client - taxpayer is a commercial airline pilot based in Baltimore and his wife is a retired flight attendant. They live in Charlotte, he drives his car to the Charlotte airport and then flies as a passenger in the jump seat or cockpit on most any cooperating airline to Baltimore, where he then flies his regular route. He also does the same thing in reverse. He doesn't pay to fly to & from Baltimore - lots of airline employee are given this privilege and it isn't taxable. Now the plot thickens. Since she is a retired flight attendant, she and her family can fly on a space available basis anywhere they wish. So sometimes he flies on her family pass rather than as a "ride-along" pilot, only because it's sometimes easier to do it that way (less paperwork, I think). But beginning in 2013, her airline began sending out 1099-Misc with the value of free retiree trips listed in Box 3. I think this is in response to an IRS decision of some sort. So she got a 2013 Form 1099-Misc showing about $9K for all family travel, but his trips to & from work in Baltimore were about $4k of that. There's no question the personal trips for all family members are Line 21 income. But I'm trying to reason through whether he can deduct the $4K on Form 2106. He is already over the 2% haircut due to union dues and other normal work-related expenses. Anyone have an opinion on whether we can use the $4K as commuting expense in this odd situation? One day I think "yes", then the next day I think "no": If so, my two choices would be to reduce the Line 21 entry to $5K with an attached note, and the other would be to leave the $9K on line 21 and list the $4K on form 2106. I think the second alternative is best, IF the $4K can be deducted in the first place. (And just for the record, he doesn't use her family pass any more for his trips to Baltimore. Lesson learned)

Bring it on Eric. Every time you've made changes, it only got better. Thanks for all you do.

Firing the guy on the spot, in the field, is bad management no matter how one spins it. That sort of knee-jerk behavior is strictly ego-driven and counter-productive at all levels. It also breeds a culture of fear and tentativeness in the organization. It intimidates any other employees (or those to whom he bragged about it for years to come). Good people make mistakes - very good people make big mistakes. An effective manager uses these mistakes to mold them into top performers. A sloppy, lazy, insecure manager discards them, often because they are a threat to his self esteem. It's also a convenient cover-up for the manager's own lack of clear communication and follow-through. I'd more quickly buy into a philosophy of "No more mistakes and you're gone !"

Ive noticed that the discussion ABOUT the political forum is a lot more civil than the discussion ON the political forum. Guess that confirms the wisdom of KC, Judy, and Eric's decision. :)

I find the traffic usually runs in the opposite direction. Namely, people pay me for advice that they DON'T follow.

Maybe some good could come out of this. The stakes are so high that Robert Redford can fight it to the max. If he wins, then possibly something in the decision might set a precedent which could be used in other cases with smaller amounts at risk. Nothing better than to see a greedy state overreach and get its hands slapped permanently. Years ago something along those lines happened to North Carolina. The legislature tried to welch on a promise it made to retirees. When somebody took the state to court, our genius of an attorney general at the time decided to fight it. He wasted tremendous amounts of the taxpayers' money on a fools errand, and the resulting "Bailey decision" cost the state tons of money for many years afterward.

If we had a sarcasm font, I'd want to suppress it. Part of the fun with sarcasm is the challlenge of figuring it out. (Well, that plus having a little private laugh when someone misses it.)

Especially with this being an election year, the conversation was destined to become ever more polarizing. (and I say that as one of the likely polarizing culprits) Besides, many of us still have lots of tax work yet to do and now there's one less distraction out there.

I swear I did not have a conversation with your client....

If Utah has a 3 year SOL, he may have a huge problem. Assuming NY wins the lawsuit, he won't be able to amend the Utah return and claim a credit for the taxes paid to NY.

Very good article. I can see how a service-type business can squeak by without an understanding of break-even analysis. Not because a break-even point doesn't exist, but because the break-even point for many service businesses is the sum of all their fixed costs plus a few other simple adjustments & tweaks. The owners often carry this figure around in their heads even if they don't know what to call it. But for a manufacturer, fabricator, or any business for which COGS is an important consideration, failure to understand B/E analysis is a surefire route to bankruptcy. They can get by without it when times are good, but when business slows down they will tend to make very bad decisions. Or as Warren Buffett says, "You never know who's swimming naked until the tide goes out."

Maybe now he will find the motivation to dig through his records, miraculously find that long-lost promissory note, and show it to his next tax preparer.

My wife approved of this message.

I think we've answered Naveen unanimously, so I don't think I'm hijacking this thread. The larger issue is the entire matter of clients who are in a hurry and need things done their way. When I first entered this business and for many years thereafter, I saw this type of client as a challenge and an opportunity. My thoughts ran along the lines that I would solve their problem, they would be impressed with my responsiveness & efficiency, and I'd have a client for life. I'd say that happened in maybe 5% of the cases I encountered. For the remaining 95%, few of them cared beyond the initial grateful "Thank You's", and most really aren't impressed by our responsiveness - they just know that this appeals to our egos sometimes and so they use it to their advantage. Looking back, more often than not there was some hidden agenda or undisclosed problem that came back and now it was my responsibility to fix it. (Or at the least I had to sweat it out for 3 years). In one or two cases, when all the facts became known it turned out to be a scary situation (another story for another day). In any event, I learned by hard experience to resist EVERY request to do something quickly and/or on the client's terms. If they're in a big hurry or need things done to their specifications, then they need to find someone else. Fees are a small part of this issue, but sometimes they even try to use the fees as a smokescreen to take your focus off the bigger problems. If there's a legitimate need to do something with a quick turnaround or to accommodate the client, I think we are usually in an infinitely better position to judge than the client. And when our instincts tell us to refuse to compromise (as did Naveen's in this case), we should definitely follow those instincts. Based on my experience, I'm guessing there's only a 5% chance that our instincts are wrong. Pretty good odds IMO.

Good question. I think she wants a preparer's name on the return, probably with no questions asked. And none of the reasons I can think of are positive. Sadly, if she looks around long enough, she will find someone she can bully. Hopefully their E&O coverage is good.

The second question is "Where's the coffee pot?" There is a critical interrelationship between the two inquiries.

The first thing I usually ask is "Where's the restroom?"

I agree with Jack and KC. This wasn't a matter of fee size - it was about control. She wanted to exert some control over you by setting your prices. If you had given in, then every future interaction you had with this no-class client would have been on her terms. Next thing you know, she would have been calling you demanding all sorts of favors, free tax consulting, or just wanting to brainstorm something with you. The fact that she engineered the conversation in the manner she did tells you all you need to know about her character. Besides, I don't believe her story about being audited six years in a row with no changes. There's more to this than she is telling you. You can't avoid situations like this in the future, because there are plenty of ignorant loudmouths out there. Best thing to tell them is that you also do charity work, but you make the determination about who gets the charity and they don't fit the profile. You're much better off without her and people like her as a client.

IRS has a well-worded warning on their web site about this issue as well. http://www.irs.gov/uac/Newsroom/IRS-Reiterates-Warning-of-Pervasive-Telephone-Scam

That's what I was thinking. A letter for those for whom I don't have email, and a slightly revised version for those who do.

This is a big topic of conversation over on the Drake Forum as well. One would get the idea that this scam is increasing in size and scope. Wonder if it would be wise to brainstorm a generic letter to send to all our clients warning them about this scam and that it is growing.

I've often asked insurance agents why insurance companies don't offer policies which build cash value for houses or cars. The principle is basically the same - you are insuring your house/car/boat, etc against its death. If policies which included elements masquerading as "investments" are a good idea for insuring our lives, why not for these other insurable entities? The answer (which the insurance industry will never admit) is that the reason for buying a homeowners policy or a vehicle policy is more-or-less a business decision. People weight the cost vs benefits and generally buy the best bargain. But insuring one's life becomes an emotional decision, so it's easier to sneak all these other elements into the decision. As a practical matter, I agree with Michael that permanent insurance can function as a form of forced savings (although at very low rates of return). That's about the only positive thing I've ever been able to muster in its favor. But the tragedy is the fact that most young people wind up grossly uninsured because the premiums on the permanent policy are so exorbitant. Thus, they can't afford to buy the half-million or million dollars of coverage (or more) they actually need to protect their family financially during the critical years. So if an unexpected death occurs, especially if it is the primary breadwinner, the spouse and children often wind up impoverished. The insurance companies compound the problem by paying miserly commissions on term insurance, but healthy commissions on the various forms of permanent insurance. Thus, it's very difficult for an agent to earn a decent income without rationalizing that permanent insurance is "better than nothing", or employing another one of a half-dozen excuses. This isn't illegal behavior by the insurance companies, but in my mind there's no doubt it is immoral.

I'll bet inquiries for opening-day tickets are already flooding in.