Form 1041 versus Form 706

[Cathy]

Just something I want to share.  I still can't get over my response to a return that was brought to me today after a family member's brother picked it up from another preparer.  

Long story short:  In-law (who didn't want to bother me during tax season...I told her what the results of the return should be...0 taxes owed) had brother bring to me a copy of the return necessary to be filed because the estate had sold a piece of property for $100,000 in 2015 under the estate's name of their father who had died.  Father's assets before liabilities were approx $300,000.  The value of the property was $100,000 at time of death (at least).   In-law called me and said brother had picked up the return his preparer had filed for the estate,  and the family owed right at $100,000.  I immediately told her to have the preparer put a hold on e-filing the return and prayed that it had not been e-filed and asked to see a copy of the return.

When her brother got to my office and laid down upon my desk a copy of a completed Form 706, I cried....I literally cried!  Thoughts running through my head were "OMG, how many other families paid these kind of taxes needlessly, etc...?"  I showed him the first line of the Form 706 in which it stated to list the "Total gross estate less exclusion,,,".  "What exclusion?", he asked me.  "Not important at all....just the $5,300,000 exclusion of assets for a U. S. Estate Tax Return", I replied!!!

I then prepared and e-filed a Form 1041, and it has been accepted by IRS...all within an hour.   And, of course, as there was no gain on the property sold and the estate had no other income in 2015, no taxes are due.

Thank God, Form 706 can't be e-filed!

OK...so who thinks I'm nuts for having cried?  I have seen my share (more than my share really) of returns prepared incorrectly by other preparers, but this one absolutely topped the cake! 

 

 

 

 

[SaraEA]

In this case I would call the person who prepared the 706 and mentor them.  I would hope that if s/he prepared other 706s this way, the IRS would have caught it and returned the money.

I do a fair amount of estate work and have never filed a federal 706.  (I have done a very few CT state 706s, which have a $2m deduction.)  I may end up doing some only for the spousal "portability" provision, which requires a return so the living spouse can "inherit" the deceased spouse's unused exclusion.  And I have one now that just may exceed the $5.3m--the attorney is still trying to get a handle on all the assets.  It will be my very first, and I've been at this awhile.  What the heck was this preparer thinking?

[Cathy]

Thanks for your reply, Sara!   Although I have some wealthy clients, none of their families (at the present time anyway) would ever need to file a  Form 706 in the event of their death.  If a new client would come to me with needing to file a Form 706, I would refer him/her to someone who deals with these returns on an on-going basis for their best interest....and the fee I let "slip through my hands" is irrelevant, to say the least.  It is impossible for each of us to know every single tax law.  I have talked to CPAs who have no problem with performing tasks for companies such as Exxon Mobile Corporation, but same people told me they wouldn't touch a 1040 with a 10' pole!  A 706 is definitely not a return to "give me a while and let me research and I will then file it for you" as was told to the individual during tax season.  Mind boggling to say the least even if a Form 706 was the correct form to use!

I would love to be able to talk to the preparer to make sure she understands why the return couldn't be filed, however, a family member tried to contact her in regard to the $100k tax liability was....let's just say....not met with open arms.  Also, I have since discovered that some other returns she prepares aren't correct also.  In those cases, she claims the standard mileage deduction in addition to depreciation and other auto costs plus the meal and incidental allowance rate (100% at that) for employees who are not eligible for either travel or the meal deductions, although they do enjoy the huge refunds they receive.  So on one hand this "former IRS employee" turned tax preparer is a true Robin Hood....taking from the rich (or so she thought) and giving to the poor by preparing a return where taxpayers are told they owe right at $100,000 (when they don't owe anything at all) and giving huge refunds to others of which they do not qualify.

I inquired about the age of the individual thinking that perhaps dementia had set in, however, the lady is years younger than I am.  So, the questions is:  exactly what job did she have when she worked for them?  1. Janitorial,   2. Receptionist,  3.  Customer Service Rep answering taxpayers' questions (and we all know about the answers people receive from them), or   4.  None of the above  (advertising ploy) 

Whatever the situation, it's preparers like this one in question that give the rest of us a bad reputation sometimes.

Take care,

Cathy

P.S.  This situation has continued to be on my mind, so I know I must do something about it.....just don't know which way I'm headed just yet.