Bank Statements for Tax Prep

[SunTaxMan]

I am seeing more and more about the need to review a taxpayers bank statements as part of the tax preparation. I am wondering if this is either wise or required for those folks who are NOT in business, who file only a 1040, with perhaps a Sched. A, D or similar. ...Whether the wisdom and/or need for bank statement review is necessary ONLY for those involved in a business. It seems somewhat cumbersome and unreasonable to ask a simple 1040 filer for this documentation. Comments? Thanks.

[kcjenkins]

I agree, TR, it makes sense for a Business return, or a Sch C, but not for a simple 1040. We are not required to audit each client, just to use reasonable judgement.

[GeneInAlabama]

Is it even reasonable to ask to see the bank statements for a Sch C or F? After all, we aren't auditing the return, just preparing it from information the client gives us.

[jshtax]

Dont buy into these scare tactics. Take the numbers the client gives you if they looks suspect question them but dont get tied up in the nonsense.

[jshtax]

Out of curiosity where are you seeing this?

[Mr. Pencil]

I am seeing more and more about the need to review a taxpayers bank statements as part of the tax preparation.

Are you a CPA? Because that starts looking a lot like accounting, and at least in my state even accountants are wary of looking like an audit engagement which requires peer review and tons of liability.

What would the bank statement show you anyway? You don't know whether it is an accurate view of his income and expenses. If YOU interpret it that way, YOU are responsible for your interpretation. Make HIM provide the numbers directly--use the organizer! For Schedule C, E, or F use his P&L or a less formal income and expense ledger. If you don't believe those, resolve it within the interview or decline the engagement.

Please post some links into what you have been seeing about this supposed need to review a taxpayer's bank statements.

[mcb39]

I have Sch C clients who NEVER balance their checkbooks. I am certainly not going to take that extra work upon myself. They give me the numbers, they sign the engagement letter and the return. I think their bank account is their business. Their income and expenses are mine to the extent that they give it to me; however they arrived at it. I am talking about very long-term clients. I would not be that comfortable with a new client and would need to see P&L and or Balance Sheet.

[ADGFINANCIAL]

We ask to see 12 Mo.'s Bank Statements for all Sch C clients. Just to verify income. Especially in EIC cases. This has not been a problem with our clients. We don't do the bookkeeping just verify the income. The also sign an engagement letter. But at the least I want the income dead on.

[TAXMAN]

I have seen where deposits did not match due to either loan money being put in or TP skimming off the top(schedule c & f only). What would be a good variance for this? Tp said the income # he gave me was correct. EIC returns I do check closer. What are other thoughts on this matter?

[ILLMAS]

So what's is everyone opinion when a corp does not reconcile their account?

[ZoomnFinancial]

So what's is everyone opinion when a corp does not reconcile their account?

This only applies to two of my small business / rental clients (out of 10) but if I am not at least part of a quarterly review / "look in" / monthly contact, etc on the financials I won't prepare your tax return. I have one S-Corp client in particular that I have had too many issues with over the years. Starting with no "salary" to the owners who are at the business location (workout facility) almost every day. They are always the first ones in the door and when I ask the questions they respond with why are you asking that or why didn't you ask it last year, etc. Then they wonder why their fee goes up (still below average).