Gut wrenching news

[HV Ken]

New client - was reviewing their 2011 return. Took 53k early distribution from annuity plan to purchase a home. Previous preparer used exception number 9 and put the entire 53k in box 2 (not the 10k maximum). To make matters worse, the IRA box on the 1099-R isn't checked, so even the 10k exclusion doesn't apply. Someone is in for a BIIGGG $5,300 shocker. Hope previous preparer has E+O insurance.

[kcjenkins]

Never fun to be the bearer of bad news. But be sure to let them know that, if they do not amend, the IRS WILL catch it, [usually takes them 2 years] and then there will be not only more interest but also penalties. If they amend now, odds are pretty good you can get the penalty portion abated, if they correct as soon as they learned of the error. That may help divert their natural anger from the 'bearer of the news' to the proper place, the original preparer.

[ILLMAS]

Is that how E&O insurance works? Pass the $5300 bill to the preparer or just penalties and interest, I see if it was done correctly the taxpayer is responsible for the $5300 anyway. Your thoughts?

[MsTabbyKats]

When I run into an error on a previous return I tell the client...and I tell them the IRS may catch it...or may never catch it. it's up to them to amend or not.

I would think that the taxpayer is still responsible for the tax....and insurance would just pay interest and penalties.

[Terry D EA]

The taxpayer is always responsible to pay the tax that they owe from an accurately prepared return. If a mistake is made regardless of whether correcting it reduces a refund or increases the original balance due, it is the tax the taxpayer would have had refunded or owed "IF" it would have been prepared properly the first time. IMHO, and my policy is that the penalties and interest are the responsibility of the preparer who made the error.

<<<<When I run into an error on a previous return I tell the client...and I tell them the IRS may catch it...or may never catch it. it's up to them to amend or not.>>>>

It is your responsibilty to tell the client they are required to file an accurate tax return and if an amendment is necessary then the taxpayer is responsible to file it. There is no choice. But, if the taxpayer chooses to ignore and play the odds game then it is on them totally and they cannot say that you told them they had a choice. CYA at all times and in all situations. We all know how these things can get misconstrued.

[JohnH]

This is another place that email is so valuable as a business tool. You can answer all their follow up questions at your leisure, plus there's a record. Just print off the conversation and stick it in the client file.

[HV Ken]

The taxpayer is always responsible to pay the tax that they owe from an accurately prepared return. If a mistake is made regardless of whether correcting it reduces a refund or increases the original balance due, it is the tax the taxpayer would have had refunded or owed "IF" it would have been prepared properly the first time. IMHO, and my policy is that the penalties and interest are the responsibility of the preparer who made the error.

I used to be from the "penalties and interest are the responsibility of the preparer" camp, but then other prepares have shared that the taxpayer had access to that money for that period of time. So now my position is to take responsibility for any penalties (and not interest). And we also we require that we must be the ones who contact the IRS first, or all bets are off.

[michaelmars]

I used to be from the "penalties and interest are the responsibility of the preparer" camp, but then other prepares have shared that the taxpayer had access to that money for that period of time. So now my position is to take responsibility for any penalties (and not interest). And we also we require that we must be the ones who contact the IRS first, or all bets are off.

VERY GOOD GRASSHOPPER!

[HV Ken]

VERY GOOD GRASSHOPPER!

Now if I can just catch a fly with a pair of chopsticks....

[michaelmars]

NOPE, HAVE TO SNATCH THE ROCK FROM MY HAND mixing up grasshopper with denial-san

[Cathy]

This is another place that email is so valuable as a business tool. You can answer all their follow up questions at your leisure, plus there's a record. Just print off the conversation and stick it in the client file.

To compliment the email solution, there's a program out there that tracks the email and can give the sender the date the email was opened by the receiver. Good to have in case the receiver says he/she never got the email!

[ari]

interesting..do you know what that program is called

[joanmcq]

I think there's a feature in Outlook that allows a return receipt. But I haven't figured it out.