Magician TP

[ILLMAS]

TP is really not a magician, but he made some fixed assets appear on the books dating back to 2011.  Last year I prepared TP's 2012 to 2014 1120S and he only had two assets on the books, I recognized them and prepared the return, this year he included additional assets, he never took depreciation for them and have been placed in service is 2011, would it be safe to date them back to  2011 (2015 tax return) and just let ATX calculate depreciation or put them in service in 2015?

[jklcpa]

You didn't mention dollar amounts of these assets and that will make a difference in the answer.  Are they below the de minimis threshold? 

[ILLMAS]

It's a trucking company, average cost of 5 trucks is $18,000 and 5 trailers $15,000,

[jklcpa]

30 minutes ago, ILLMAS said:

It's a trucking company, average cost of 5 trucks is $18,000 and 5 trailers $15,000,

My first reaction is to wonder how the books were ever balanced and what else is wrong on the returns, and I'd be asking this client a lot more questions than how to now make assets magically appear on the tax returns. How were these assets acquired and paid for, were they financed and loan payments being made, were they acquired in some sort of barter arrangement?  Were the cash accounts reconciled and in balance? Are there cash accounts in existence that also aren't on the books? 

[Lee B]

The big question is, If the assets weren't reported were they expensed back in 2011 ???

[ILLMAS]

18 minutes ago, cbslee said:

The big question is, If the assets weren't reported were they expensed back in 2011 ???

TP took the liberty of adding them back to the books with dates dating back to 2011 after the 2012 to 2014 returns were prepared. 

[ILLMAS]

57 minutes ago, jklcpa said:

My first reaction is to wonder how the books were ever balanced and what else is wrong on the returns, and I'd be asking this client a lot more questions than how to now make assets magically appear on the tax returns. How were these assets acquired and paid for, were they financed and loan payments being made, were they acquired in some sort of barter arrangement?  Were the cash accounts reconciled and in balance? Are there cash accounts in existence that also aren't on the books? 

 

Excellent questions, I am afraid the TP might not have the best answers   

[Lynn EA USTCP in Louisiana]

I would ask to see the purchase papers on these assets.

 

[Catherine]

Then you get to get up close and personal with Form 3115.  Assuming you actually want these clients...

[SaraEA]

Your client "forgot" he had $165k in assets?  How much income did he "forget?"  Did he deduct property taxes, registrations, heavy road use, maintenance, fuel, etc all those years?  I believe the tractors depreciate over three years and the trailers over five, so most of the expense is behind him.  Form 3115 is the only way to go.

Reminds me of a client I had once who forgot he was married!  And I had a client this season who only had one W2, nothing else, and guess what he forgot to bring to his appointment?  My memory ain't that great either, but......

[BHoffman]

I would probably be asking for tax returns 2011 and forward, along with the purchase docs.

"Rocky, watch me pull some trucks and trailers outta my hat!"

 

 

[jklcpa]

Ask for the purchase docs and a copies of the cancelled checks of how these were paid for.

This reminds me of an exact example that was given in a CPE class, and when the cancelled check was finally obtained, it was to a cash account that was off the books.

[BHoffman]

I think it's how (if it was) the transactions were recorded.  I've seen clients code vehicle payments to "Auto Expense" instead of capitalizing the asset and recording the payments to the loan.  The trucks and trailers might have been written off over the years as an expense.  

[ILLMAS]

Thank you everyone for your concerns and excellent question for the client, sometime I feel both you and I are more worried then the clients, shouldn't it be the other way around 

[Gail in Virginia]

Why should the clients worry?  They know they are doing it the way "everybody" does because their barber (or neighbor, or local person in same business) told them so.