JohnH

This client will have a major problem if this comes to light, maybe even after the SOL has expired. And anyone who has knowledge of it, even after-the-fact, could find themselves in a sticky situation if the client decided to throw them under the bus.

OK, well maybe I mis-spoke. It won't work legally, but that doesn't stop some people. In this case, I assumed the client has not made the SEP contribution, and they intended to make it during the extensions period, thus no deduction was taken on the original return as filed. Maybe I read the OP incorrectly.

I meant to save a link to that video about the "Visit From the IT Department" in the past few days, but now I can't remember where it was. Can someone point me to it or paste the link on this thread? I thought it was hilarious and I want to send it to my daughter. Thanks.

Won't work. The return has already been filed, so there's no way to avail themselves of the tax benefits of the deduction for the 2013 year.

I think you have to level with the client, and put everything in perspective: 1) Their opportunity to fund the SEP ended when no extension was filed. That door is closed. 2) They are not in anybody's cross-hairs. They will simply need to navigate the payment process now, just like they would have done it with an October filing. They can get 90 days to pay by making a phone call after they receive their notice around mid-May. Or, if they need longer than 90 days, they will need to file an installment agreement request, which has a fee associated with it. Either way, their FTP penalty and interest will be the same regardless of whether the return was filed Apr 15 or an exension was filed. The FTP penalty and interest began Apr 15 and will run until it's paid. Aside from the lost opportunity to fund the SEP, they are in the same position with or without the extension. Was the intended SEP contribution a meaningful amount, or just a token payment to shave a little off the tax liability? In this situation, I MIGHT be wiling to refund them the FTP P&I for 3 or 4 months, but only for the portion which applies to the tax savings resulting from the SEP contribution had they been able to make it. And only if they are otherwise a good client. And only if they go ahead and make the SEP contribution for the current year. If they are a PITA, then I'd most likely just apologize for the error and move on .If they are as furious as you say, they probably aren't coming back next year unless they are otherwise reasonable people who will appreciate a token concession on your part. Also, unless they are making the full allowable SEP contribution each every year, they are only getting a marginal tax benefit by making last year's contribution now vs going ahead and making a contribution now for the current year. The analysis is a little more complicated, but for nominal SEP contributions, you can demonstrate that they get only a slight P&I benefit by holding the contribution window open via the extension.

Yes, if you do things correctly on your end, then what he does with the 1099-INT forms is entirely up to him.

Here's your sign... Amazon.com - Retro Style Sign Saying, "I'm Called PAW PAW Because I'm way too Cool to be called Gran.pdf

Congratulations Jack. Being a grandpa is great.

Well, that's a different issue. Whether or not the sellers want to break the law isn't really a factor in the decision on how to prepare your client's return, is it? Although if your client is inclined to help them cheat might be important info for you in the future. What else might the client be willing to do WITHOUT telling you, just because it benefits him or someone he wants to impress? And who might be the first person the client would throw under the bus if IRS comes calling? After all, at that point he will still have an obligation to pay for the rental property to those same sellers, but there are plenty of tax preparers out there...

I have filed Schedule E with the interest deducted on Line 13 and no attachment. Never heard a word back about it. But I've always kept notes in my files documenting the reason it was handled this way. The Schedule E instructions for Line 13 are a little vague. They address the fact that an attachment is needed when a 1098 is issued to a different person, but they are silent on whether an attachment is needed for seller-financed mortgages.

That's a great point. The system is getting better and better at catching underreported income and overstated deductions. But it makes no effort to ferret out over-reported income and/or missed deductions.

Eric, you're not nuts for not taking the home office deduction. But you may be costing yourself some money. Your greatest risk is filing a schedule C in the first place, but you don't have any choice in that matter if you have self-employment income. Using made-up examples, if a Schedule C adds 50 points to your DIF score, claiming the home office might add another 5 points. So if all the factors on your return added up to 302 points, and the cutoff happened to be 300, then technically the home office put you over the magic number. But the relative risk isn't that great. (Those are total fabrications - the scoring system might be in the thousands, for all I know. But I think the principle is valid.) On the positive side, keep in mind that the home office deduction is more valuable on a dollar-for-dollar basis than an itemized personal deduction. This is because the home office deduction reduces your self-employment tax in addition to your income tax. And now that the IRS offers a simplified method, I suspect the relative risk has gone down for those who opt to use it.

I would think the mere existence of a schedule C would significantly raise the DIF score on any return, without even knowing anything about how the DIF score is calculated.

He claimed to have worked in the statistical analysis side of IRS, where someone would know this sort of thing. But there was no way to confirm this, and lots of people make all sorts of claims to make themselves look important or to sell books. But from an analytical point of view, the rationale made sense to me. Every process has its deadlines, limitations, and weaknesses. Also, this was back before the e-flinging days, so even if it was true then, it may no longer apply.

Agreed. That would be priority group # 2.

If I were in charge of selecting returns for audit, I'd weigh the selection heaviest on returns which were filed on Apr 15. I believe that is where the greatest number of errors are made, as last-minute filers are rushing to "get something filed" at the 11th hour. Wouldn't surprise me to find 75% of errors by taxpayer AND preparers occur in those golden hours around Apr 12-15.

You can only take one type of transaction directly to schedule D - "Covered Transactions with Basis Reported to IRS". With those transactions, you can enter Selling Price and Cost Basis on lines 1a and/or 8a. No attachment is required for those transactions and no other entry is required. Then you have transactions with basis reported to the client, but not reported to IRS. Those must be entered on the 8949 in sub-total form only, and the brokerage statement must be attached. The line entry in the 8949 should say "(broker name)-see attached schedule". There might be two 8949's needed, depending upon whether you have long-term and short-term transactions. The 8949's then feed onto the detail lines on the Schedule D. Then you may have sale transactions on the brokerage statement with no basis reported to the client or to IRS. These transactions must be entered line-by-line after you get basis info from the client (good luck with that one). Then you have capital gain/loss transactions which are not on a brokerage statement at all. (special good luck with that one).

There used be a rationale along the lines that returns filed in Sept - Oct miss the cutoff for audit selection based on the current year and get thrown into the mix for the following year. Not omitted, but simply batched with the succeeding year. Assuming incomes, complexity of returns, and number of returns filed increase each year, then someone whose return was on the MARGIN for the current year might drop below the cutoff point for the succeeding year. That would apply to someone with a marginal DIF score, but would not apply to someone selected for a random audit or compliance audit. It would also not apply to someone selected because of a specific item on their return which needed clarification. The only compliance audit I've ever worked on was a return filed in March, but I don't attach any significance one way or another to that. I even heard some people with IRS say that was probably true, but there's no way to prove or disprove it. After all, the exact methodology is a closely-garded secret. Anyhow, from a statistical standpoint the argument made sense. The odds might be lowered a little, but there would be no certainty attached. I have seen some returns filed on extension that I just KNEW would be audited, but it never happened. But I've seen the same thing happen with returns filed by Apr 15. If one had access to all the data, it would be interesting to evaluate the known risks associated with extending the SOL by 6 months vs the benefit of a slightly decreased audit potential (assuming there is anything to the idea in the first place).

It is well worth taking the time to study page 3 of the attached Form 8949 instructions. I kept putting off preparing my returns which had brokerage statements with multiple sale transactions until after March 15 (with many of them on extension now). Fortunately I studied the instructions before actually undertaking any of them, and I found that NONE of my clients needed detailed line-by-line entries - not even those who had wash sales. The supporting info must be attached to the return, but actual entries required are very simple. Every major brokerage firm now reports this information in a format which can be entered in summary form. http://www.irs.gov/pub/irs-prior/i8949--2013.pdf For covered transactions for which cost basis has been reported to IRS, you only need to enter sales price and cost basis on 1a and 8a, completely bypassing the 8949. Then you just pull the sub-totals for the other categories of transactions which have cost basis reported to the client but not to IRS, indicate "Multiple" transactions, and check the boxes to push the info to the proper Form 8949. The only transactions requiring line-by-line entry are those for which the brokerage statement lists no cost basis at all, and capital gain/loss transactions which are not on a brokerage statement.

It makes no difference whether you filed an extension without payment or filed the return without payment. Either way, the client will owe the same. He will owe 1/2 0f 1% per month FTP penalty, plus interest at 3% APR, for a grand total of 3/4 of 1% per month. So if he pays before May 15, he will owe about $2.50, unless there is some minimum or if he is subject to an estimated tax penalty. Since the amount is under $25, he may not even get a bill, but the P&I will sit in the computer unpaid and will be deducted from a future refund.

He learned to write that way in his "assertiveness training" course. Sometimes that style works, but usually it just ticks people off.

That's better than backdating the postage meter back in the old manual postage meter days. Every now and again I'd have one or two people come to my office on the 16th or 17th and ask me to meter their envelope for the 15th. If it wasn't tax returns or extensions, it was Sales Tax reports and Payroll Tax reports. I wouldn't do it, but I'll bet they found someone who would. And I know of times when someone would drop an extension in the mail on the 16th and the return would't get a FTF penalty even though there was tax due. A tax preparer I knew would do that on the theory that their client had nothing to lose. Then he would attach a copy of the extension request to the return. (there was a time when we had to do that, and some states still require it). But all in all, I think those days are long gone.

Forget the taxes. I know, it isn't a palindrome, but there's a more important point to be made here...

And on top of everything else, they sent a nice Easter card this week. It's gratifying to be dealing with a company that respects and celebrates Resurrection Day.

This is a common problem and a great solution was suggested on another thread in the past week or so. The suggestion came from SFA in this thread When a client drops off info, have them sign a simple statement that if you find info to be missing, it MAY be necessary to file an extension. The filing of the extension will be done at your discretion, based on your professional opinion on whether it is necessary. I suggest that the statement not mention any dates or deadlines. That way you are not committed to ANY completion date, no matter how early they get their partial info to you. So a Feb 1 drop-off doesn't commit you to complete the return by the 15th of Apr if the client still owes you information. You make that determination based on when they get the rest of the info to you and based on your own workflow. A prime example is the problem of final brokerage statements all showing up on March 15-20, for example. The statement should mention that you will not be responsible for any interest or failure to pay penalties which may be assessed. The filing of the extension will be for the purpose of avoiding late filing penalties only, it is a billable extra service, and you will not be responsible if it is subsequently rejected for any reason. This could be a part of your engagement letter, but I lean toward making it a separate statement since it would only apply in certain situations.