Kea Posted February 14, 2012 Report Share Posted February 14, 2012 How far do y'all go to check clients' listed property info? Client sells real estate & added several assets to her business - computer, printer, GPS, etc. I informed her of the rules about maintaining a log for listed properties. But she did indicate that she was maintaining a log and that all assets were used 80%. When I asked this year - Yes, maintaining a log & all asset use same as last year. (Since this was all done through e-mail, I know she didn't get these figures off MY ceiling - maybe hers.) Would y'all "accept" this and go on? Or, how would you go about asking that it is just really weird that everything has exactly the same usage both years? I don't really want to be accusatory or mean, but I do want to make sure I've done my appropriate due diligence. If my other clients have "lied to me" about keeping a log and giving me % usage, at least they had the courtesy of varying the amounts so that it wasn't suspicious. Thanks. Quote Link to comment Share on other sites More sharing options...
ILLMAS Posted February 14, 2012 Report Share Posted February 14, 2012 In an IRS audit, your client will be asked to provide a log, at this moment you are solely going on the information your client is providing you and thats all. Quote Link to comment Share on other sites More sharing options...
Kea Posted February 14, 2012 Author Report Share Posted February 14, 2012 Agreed. I just want to make sure I'm not leaving myself open to a $5000 IRS penalty. In general I do just take my clients' word. I agree with the many folks here who have pointed out it is not (or at least should not) be our job to audit our clients. But I've explained the rules to her, so I'm not sure how much more I can do. Quote Link to comment Share on other sites More sharing options...
jainen Posted February 14, 2012 Report Share Posted February 14, 2012 >>it is not (or at least should not) be our job to audit our clients<< According to Circular 230 at http://www.irs.gov/pub/irs-utl/pcir230.pdf, a preparer "generally may rely in good faith without verification upon information furnished by the client. The practitioner may not, however, ignore the implications of information furnished to, or actually known by, the practitioner, and must make reasonable inquiries if the information as furnished appears to be incorrect, inconsistent with an important fact or another factual assumption, or incomplete." This newly-updated treatise on professional ethics has great deal of interesting ideas, like what to do when you know that the client has lied in the past. Quote Link to comment Share on other sites More sharing options...
Kea Posted February 14, 2012 Author Report Share Posted February 14, 2012 This is why I'm asking. I want to trust my clients and I don't like to be at all confrontational or accusatory. And I can't say I know she is lying to me ... it just seems a coincidence. Perhaps she is just very consistent in her business. I am trying to conduct my business in a professional & ethical manner. FWIW, I'm not under Circ. 203 ... yet (hopefully soon I'll be an RTRP), but I do still try to follow the rules. While we are still required to do our due diligence for all items on the return, this isn't EIC and does not rise to the level of filing extra forms to prove our due diligence. I'm just trying to determine the level of due diligence required / expected. Perhaps, a better question would be what are the "reasonable inquiries" I should make? Thanks again. Quote Link to comment Share on other sites More sharing options...
jainen Posted February 14, 2012 Report Share Posted February 14, 2012 >>what are the "reasonable inquiries" I should make?<< For starters, no inquiry at all unless "the information as furnished appears to be incorrect, inconsistent with an important fact or another factual assumption, or incomplete." Apparently you are worried that this client is TOO consistent and complete, but do you have any important fact. or factual assumption to support your doubts? Did she tell you that the GPS was a big help mountaineering in Tibet last summer? Did she bring in the log book and it's really just a household inventory with serial numbers? Did she pay $4500 for the so-called business computer the day before her son's 18th birthday? Whatever information you have that doesn't match up, that's what you need to ask about. Quote Link to comment Share on other sites More sharing options...
Kea Posted February 14, 2012 Author Report Share Posted February 14, 2012 No trips to Tibet or anything like that. Just "very consistent!" No other reason to question. She's been a client from the very beginning and no problems. Just the "very consistant" now that she is self-employed. Thanks. Quote Link to comment Share on other sites More sharing options...
grandmabee Posted February 15, 2012 Report Share Posted February 15, 2012 I think ALL preparers are now under Cir 230 1 Quote Link to comment Share on other sites More sharing options...
Terry D EA Posted February 15, 2012 Report Share Posted February 15, 2012 Yes all preparers are under circular 230. For all my schedule C clients as well as others, I utilize an engagment letter that contains a paragraph stating that while I do not do an independent study of their records and that by signing they indiciate they can substantiate all expenses and provide the necessary documents should any of the tax authorities so choose to ask for it. I was told sometime ago, that this was the best way to sort of CYA. Again, the new items that Jainen mentions is interesting. I still feel it is appropriate to ask questions when something just doesn't seem to pass the smell test. When I do this, I keep notes of questions asked. Quote Link to comment Share on other sites More sharing options...
Kea Posted February 15, 2012 Author Report Share Posted February 15, 2012 I was under the impression that preparers who are currently unregistered were not under Circular 230. Once they take and pass the RTRP exam they are then covered. Perhaps I misunderstood. That said, I've still tried to remain in compliance. Terry, I think your engagement letter comment is a good one. Quote Link to comment Share on other sites More sharing options...
jainen Posted February 15, 2012 Report Share Posted February 15, 2012 >>preparers who are currently unregistered were not under Circular 230<< Circular 230 is an ethical standard, not a law. In its own words it applies to "Any individual who for compensation prepares or assists with the preparation of all or substantially all of a tax return or claim for refund." That includes you, in case you were thinking of ignoring ethical standards. Quote Link to comment Share on other sites More sharing options...
Kea Posted February 15, 2012 Author Report Share Posted February 15, 2012 I've always tried to follow ethical standards. When reading the Circular, I noted the classifications of preparers covered, including the recent addition of RTRP. It was my understanding that by including RTRP, they would be covering all professional tax preparers by the end of 2013. I definately try to follow all the rules -- legally and ethically. Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted February 15, 2012 Report Share Posted February 15, 2012 I trust all my clients and believe everything they tell me. Tom Lodi, CA 2 Quote Link to comment Share on other sites More sharing options...
Jack from Ohio Posted February 15, 2012 Report Share Posted February 15, 2012 If you have a registered PTIN, you are now under the NEW Circular 230. Quote Link to comment Share on other sites More sharing options...
Kea Posted February 15, 2012 Author Report Share Posted February 15, 2012 Good thing I've been following it anyway. (Yes my PTIN was renewed in December.) Quote Link to comment Share on other sites More sharing options...
OldJack Posted February 15, 2012 Report Share Posted February 15, 2012 We are all unpaid IRS employees now! We should file for federal unemployment compensation during the off season. 3 Quote Link to comment Share on other sites More sharing options...
Gail in Virginia Posted February 15, 2012 Report Share Posted February 15, 2012 I trust all my clients and believe everything they tell me. Tom Lodi, CA I do too or they don't stay my clients! 1 Quote Link to comment Share on other sites More sharing options...
Jack from Ohio Posted February 15, 2012 Report Share Posted February 15, 2012 I trust all my clients and believe everything they tell me. Tom Lodi, CA I smile and nod an awful lot!! Quote Link to comment Share on other sites More sharing options...
GeneInAlabama Posted February 15, 2012 Report Share Posted February 15, 2012 >>We are all unpaid IRS employees now! We should file for federal unemployment compensation during the off season.<< Where do we apply? How much will I get? Do I have to report my other income? 1 Quote Link to comment Share on other sites More sharing options...
Kea Posted February 16, 2012 Author Report Share Posted February 16, 2012 More wrinkles as they've answered more of my follow-up questions (although I still haven't said anything about the "consistent log"). --In 2010 they reported paying alimony, but this year they said they paid it but don't want to claim it. --She is a real estate agent and had a very large 1099Misc for 2011 ($93K which was much larger than the 2010 and I didn't have the 2011 form until last night). When I asked if they had any business expenses besides the car mileage and depreciation, she said no. In 2010 she had fairly significant advertising, fees & classes. They are buying a house and they therefore wish to "maximize their income" for the loan application. I always try to prepare as accurate a return as possible, but have not generally tried to convince clients to take deductions they don't want to take. (I've 2nd guessed a client who said "I'm not going to look for that charitable receipt -- it won't make that much difference anyway....") IRS is probably happy to get as much tax money as they can. However, I was hoping that when I told them they owed $33K they would decide they want to put in their alimony and business expeses. Even putting in the expenses may or may not make that big a difference. They took out IRAs & have the < 59.5 penalty as well as not paying quartely taxes on significant SE income. I've gone from wanting to disallow a deduction to wanting them to have more. OK, I realize I'm just getting paranoid, but I'm not sure how I should proceed. Any advice is appreciated. Thanks Quote Link to comment Share on other sites More sharing options...
mcb39 Posted February 16, 2012 Report Share Posted February 16, 2012 I went through this last year with a client (wife) who wanted me to amend their return and take away some of her self-employed husband's expenses to make it look as though he was making more money. She said it was so that it would look better for a refinance at the bank. I refused to do it and have several pages of comments printed from this board to the effect that I would have been helping her commit fraud. Turns out this year that she has left him and has filed for divorce. Of course, she wanted his income to look higher than hers. The refinance went through just fine without trying to dupe the bank. I am putting them on extension as their court date isn't until April. I have not heard from her since she asked me to amend the return. However, the husband has kept in contact as he wants to remain my client. It will probably be a mess as they have a lot of assets and several rental properties. Your situation seems a lot the same. If I knew they were not taking deductions they were entitled to, I would feel obligated not to file the return. Quote Link to comment Share on other sites More sharing options...
Kea Posted February 16, 2012 Author Report Share Posted February 16, 2012 Thanks Marilyn. I think I remember reading that thread at the time. I definitely wouldn't file an amended return to take off legitimate deductions. I'm just not sure about not putting them on in the first place. I'm feeling less and less comfortable with this return, but she's been a client since my 1st year in business. I'm not sure how to explain why I can't file a return to shows too much taxable income. It seems like she asked me about this a few years ago - clarifying that it was better to err on the side of caution by not claiming something. I believe at that time it was a charitable donation. My thinking at that time was hey, sure, IRS won't have a problem if you pay too much tax. Now to say I'm uncomfortable with this return for that reason would not be consistant. And I'm sure she would call me out on that. Did I also mention I don't like confrontation? Quote Link to comment Share on other sites More sharing options...
Pacun Posted February 16, 2012 Report Share Posted February 16, 2012 I trust all my clients and believe everything they tell me. Tom Lodi, CA Believe or NOT, this is very true. If I don't trust a client, he will not be my client. I cannot prepare a tax return for someone I don't trust. Every year I send people away because it doesn't make sense what they are presenting or they tell me one thing and they want to report another. I don't trust them and I refer them to HRB. Quote Link to comment Share on other sites More sharing options...
mcb39 Posted February 16, 2012 Report Share Posted February 16, 2012 Most people don't like confrontations, myself included. However, if the client never told me about a deduction; that would be one thing. If they bring in their balance sheet or cash flow report and say not to take this deduction or that one, it would make me very uncomfortable to the point of turning the client away. I would refuse a client even if it was a relative, rather than have a guilty concience and/or feel uncomfortable about a return that I had prepared and signed. Quote Link to comment Share on other sites More sharing options...
Kea Posted February 16, 2012 Author Report Share Posted February 16, 2012 The only deduction I KNOW they aren't taking is the alimony. I guess I have to bite the bullet. I've never fired a client before. I've lost potential clients when they found out I wouldn't lie for them. But this is different. Thanks to all. Quote Link to comment Share on other sites More sharing options...
Recommended Posts
Join the conversation
You can post now and register later. If you have an account, sign in now to post with your account.