New Client - CP2000, advice requested

[Cathy]

The client is actually a friend and I know her story to be true....thanks to her facebook posts over the past year, I ( and many others) knew pretty much every detail of her story before we sat down. Unfortunately, this means I will not be able to charge near what I would like to.

,

I have completed her 2012 return....pretty nice refund thanks to education credits for her daughter in college.....but I hesitate to actually file it for her until we clear up the 2011 issues.....otherwise, I'm assuming they will just hold her refund.

The problem is that in order to process her daughter's financial aid, the school is requesting 2012 transcripts. I hope the school will wait and, if so, it won't negatively affect her daughter's aid.

what would all of you smart people do?....file 2012 now or wait a few weeks and potentially longer (extension) until 2011 is resolved?

JB,

I'd also hold on filing her 2012 return until 2011 is taken care of.

I don't see what the problem would be to issue a copy of the 2012 return (after the Mom pays you, of course) for the daughter to update her FAFSA application as long as you know the figures on the 2012 return are correct. A school can request a copy of the tax return, however, that usually happens prior to the fall semester as the financial information from the 2012 tax return determines the aid for the 2013-2014 school year (beginning with the fall semester of 2013).

Just re-read your post and see that the school is requesting a copy now...that is odd as the FAFSA application has to be updated first. There again, I see no reason why a copy of the return can't be shared with the school at this time. You mentioned your client is your friend. If it were me, I'd ask her Mom why the school needs a copy now....I have seen some uneducated financial aid people go up and beyond their line of duty to disqualify a student from aid. The aid for the current semester should already be written in stone. If there are some pell grant funds left over for the school year, they can be used for a summer semester if the school wants to do their job correctly.

Hope I didn't confuse the issue. We've had some less than gracious student aid workers in a local junior college that will bend over backwards to make sure students don't get all of the aid granted to them.

Cathy

EDIT: Re-read your post again....just saw where you made reference to school is wanting a transcript of the return. I didn't realize that...I was thinking they were requesting a copy from the parent....not a transcript from IRS. Too early in the year for the school to be asking for a transcript now anyway and as someone stated, they aren't available until August of each year??? Maybe student misunderstood and all is needed is a copy of the return in the interim.

[Jack from Ohio]

Cathy,

Colleges have stopped accepting copies of tax returns for verification. They demand the transcript from the IRS.

[Janitor Bob]

I have a daughter in her 3rd year of college. Her college wanted transcripts (not copies) of both her 2012 return and mine....to verify numbers on the FAFSA for 2013/2014 aid year....and wanted them by March 30th! I called the college (University of Akron) and they said that deadline was just to get people moving and not set in stone. One way to avoid needing transcripts is to link the IRS database directly to your FAFSA on-line application.....this automatically and immediately verifies the FAFSA data. The only problem with that is the returns are not available for linking for 7-12 days after filed/accepted.

The mom is my client and so is her daughter/student. Daughter filled out her FAFSA based on last two check stubs and college is already telling her that she needs transcripts of hers and the mother's. Her is no problem...I just did that one and will transmit tomorrow...meaning she could link her FAFSA to it in about two weeks. It is the transcript for the mother's that will be delayed. I have it done and will print a copy of her to use.....then once 2011 is resolved, I will file and advise student to go back to FAFSA in approx. 10 days, revise from estimate to filed and link to IRS database.

I cannot even truly respond to the CP 2000 until I see clients 2011 transcript that I was able to order on-line yesterday.

[Cathy]

Positively no need to amend the return to add forms that were omitted in error, especially the 8889 which simply tells IRS that the HSA distribution for 2011 was not taxable as it was used for unreimbursed qualified medical expenses (assuming it was). I have sent approximately 5 Form 8889's in response to a CP2000 letter and it settles the problem. I have a checklist of questions before I prepare a return, and one of my questions is in regard to HSA's. The 5 times I have had to correct a client's return has been new clients who prepared their own return. We will all see this more frequently especially with new clients as more and more policies are moving toward high deductibles.

I recently had a doozy of a return to correct as evidently, the IRS employee who reviewed a client's return wasn't familiar with a QTP distribution and the CP 2000 Notice changed everything from the taxable income, EIC, Child Tax Credit, etc.... The clients were late in bringing in the CP 2000 Notice and had gotten the certified letter from IRS regarding a Lien, etc... We called and got them to hold off on garnishing wages. The correspondence we sent had the complicated formula for computing the taxable portion of the QTP and all of the receipts necessary except one for $50 that the client couldn't find. I noted on the CP 2000 Notice that we didn't agree with all of the changes and sent a copy of the formula with receipts that proved the taxable income needed to be increased by $50 rather than the $10,000 IRS has said in the original CP 2000 letter. I plugged in the additional $50 into the original return and explained in the correspondence that the new calculated balance the taxpayers owed was $48 (due to changes in the EIC, etc.) The client forgot to send in the $48 with the correspondence before they mailed it. A couple of weeks later, they received a bill of $56 which included the $48 plus interest. Had we sent a 1040X, the client probably would have had his wages garnished as it takes several months to process.

TaxWizard,

You did make a good point! There definitely are times where a Certified Letter is required, however, when IRS is working with you after a deadline has passed, you want the correspondence to get there as soon as possible....thus my Priority Mail with tracking is still what I will do from now on, IN ADDITION to a Certified Letter. Thanks for the tip.... Oh, and the fax also...so now there are three viable methods! (4 with the initial phone call)

Ms. Kats,

The phone call is the first thing I do. As you know, a Certified, Return Receipt Requested letter does positively slow the correspondence from getting to the destination. However, I have found the Priority Mail with tracking is faster than regular mail...in my area it is anyway.

JB,

Insofar as the school wanting a "transcript" of the return in March is puzzling to me. Perhaps the student misunderstood? You can release a copy of the return to the Mom (after she pays you, of course), but I would wait at least a couple of weeks to see if client is going to provide the necessary records you'll need for getting the problems with the 2011 return solved before I e-file the return. I can't think of any school who would be working on the fall aid this soon. For them to request a transcript usually means that the FAFSA form has been received by the school for the 2013-2014 school year. For the FAFSA to have been completed or updated usually means that the student has updated the financial information from 2012 tax returns.

I have also seen a school in our area overstep their boundary lines and try to lower aid to a student in a current school year when they have no right to do so.

Also, if the Mom's 2012 refund would take care of her 2011 liability plus give her a refund now, I would let the Mom make the call on whether to e-file now or not. After the 2011 issue is resolved, any remaining refund due her from her 2012 return (if any) will be sent to her. Again, if that is the case, put the monkey on your client's back.

Take care,

Cathy