komtax Posted March 28, 2013 Report Share Posted March 28, 2013 Former H&RB client's audit resulted in additional payments due to IRS. Client had paid for audit "peace of mind" protection, so H&RB paid part of the additional owed taxes, and issued client a 1099-misc ( box 3 other income) for amount they paid IRS. Client is furious when told by me it had to reported as income and paid taxes on it. Is there any other way to report it other than on line 21 ( i am filing 1040 )? P.S. in case you may be wondering, by looking at prior return it appears that the error was HR&B ). Thanks for your feeback. Quote Link to comment Share on other sites More sharing options...
taxtrio Posted March 28, 2013 Report Share Posted March 28, 2013 The IRS requires the taxpayer include the payment on their behalf in income. Not the choice of HRB. It actually is stated in the paperwork for peace of mind "guarantee" that if amount paid is 600.00 or more that they will get a 1099MISC for it. I am a former HRB person... abandoned ship over 10 years ago... but I remember when the IRS came down with this ruling.... we weren't happy about it then, and the clients are not happy either. As usual; even if it was explained to them at the time of purchasing the peace of mind they either don't remember or didn't understand the conditions. Quote Link to comment Share on other sites More sharing options...
JohnH Posted March 28, 2013 Report Share Posted March 28, 2013 Did you calculate the additional tax generated by the 1099-Misc, just so the client knows how little it cost them to report the income? It would be nice if the compensation included the additional tax liability, but that isn't going to happen. So I'd be sure the client has a good perspective on how small the additional tax is in comparison the the P&I. 1 Quote Link to comment Share on other sites More sharing options...
komtax Posted March 28, 2013 Author Report Share Posted March 28, 2013 Taxtrio thanks I'll explain your take to her. JohnH thanks for the input. Quote Link to comment Share on other sites More sharing options...
Lion EA Posted March 28, 2013 Report Share Posted March 28, 2013 If it was POM, then it paid for the client's additional tax, penalties, and interest, up to a maximum amount, maybe $5,000. So for a combined federal and state tax rate of 37%, for example, that's another $1,850 in 2012 taxes. But, I too am a former Blockhead from a Premium office where POM was included in the fees for everyone and had to explain it at the time of tax preparation and explain it again whenever anyone came in with a claim and then receive the irate complaints of the spouse at the time of preparing the following tax return. Still, I'd rather pay $1,850 a year later than pay $5,000 a year earlier. Not a bad trade, even if they were at a regular office and had to pay $20 or whatever to purchase POM. 1 Quote Link to comment Share on other sites More sharing options...
JohnH Posted March 28, 2013 Report Share Posted March 28, 2013 Good point Lion. If the client considers the POM to be the equivalent of insurance, then the taxes on the POM are the equivalent of a deductible. Quote Link to comment Share on other sites More sharing options...
Lion EA Posted March 28, 2013 Report Share Posted March 28, 2013 Great analogy, John. Quote Link to comment Share on other sites More sharing options...
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