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One of them is lying . . .


SFA

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Married couple separated last year. We always did their joint return. She shows up first this year and says she left with the kids and had them with her the full year. We prepared her return and it is here waiting to be picked up. 

Meanwhile, he shows up and says that one of the kids was with him the full year. He wants to claim the one. We can't tell him that we prepared her return and the kid is already on that return.

Now what? Must we decline to do his return? Now we have doubts about her return. Should we change our answers on her Form 8867 and let her know that we have new information?

Arghhhh! What to do?!:(

 

 

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9 hours ago, SFA said:

Married couple separated last year. We always did their joint return. She shows up first this year and says she left with the kids and had them with her the full year.... 

Meanwhile, he shows up and says that one of the kids was with him the full year...

I think this is exactly why we have the due diligence requirements.  I would not take the word of either of them. And obviously you can't now.  I would make both produce evidence of the kids' residency.  School records, medical records, post cards from bull crap solicitations the kids received (somehow THEY always find where the kids live).

I would also ask mom for her lease agreement if she's renting or settlement statement where she brought her new place.  They'll be dated 2015 or 1/1/2016, right?  A lease agreement might also have kids listed on it.

I would only prepare the return of the one whose story panned out.  And it might be neither.  And they may both decide to look for someone who won't be so, well, diligent.   If somehow both come up with documents indicating they are being truthful, I'd pick one and hope they wrap it up in 2017.

If I did either return I'd document the crap out of everything.

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Does disclosure, use and privacy restrictions prevent me from telling either of them what I know?

We do not interrogate our clients. We asked routine questions of her, accepted her answers and completed her return a week ago. She just hasn't stopped to pick it up yet. That's where I am feeling stuck. 

I love these answers, but we are not mediators and now with all the disclosure rules--our hands are tied. They each came to our office as separate clients. 

I will probably tell him that in these situations it is first come, first serve. He's out. Period. After that I will tell her--we know he plans to challenge her return and see what she says.

Bummer all around. I like them both and feel sorry their marriage has come down to this.

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19 minutes ago, SFA said:

Does disclosure, use and privacy restrictions prevent me from telling either of them what I know?

We do not interrogate our clients. We asked routine questions of her, accepted her answers and completed her return a week ago. She just hasn't stopped to pick it up yet. That's where I am feeling stuck. 

I love these answers, but we are not mediators and now with all the disclosure rules--our hands are tied. They each came to our office as separate clients. 

I will probably tell him that in these situations it is first come, first serve. He's out. Period. After that I will tell her--we know he plans to challenge her return and see what she says.

Bummer all around. I like them both and feel sorry their marriage has come down to this.

SFA:

With the above statement?  You have to return all the documents to both of them.  One of them is right, both of them are wrong.  And you are stuck in the middle.  You have to choose, and I believe your best answer is to let them both go. 

The 8867 disclosure form and potential penalty ($500 each client, notwithstanding they look at every ONE of your 8867's if they look at one) put you into the position that you DO have to interrogate your clients.  Its no longer reasonable that we ask them some casual questions, accept them at face value, and go from there.  The risk is too great.   In this particular case, you DO have to interrogate.

Have you been involved in divorces cases before?  They have lawyers.  And they like to beat up on folks if it makes sense for their clients, and if our clients have gained or lost tax deductions or credits like the EITC. AOTC, CTC or whatever, and its because you didn't do your due diligence, then its a real bad day for you.

I have plenty of clients that I love both spouses, and their kids, but in a divorce, the rules change, and I am very wary.

And hiding behind the disclosure rules isn't going to help you. 

I would recommend that you ask each client who is representing them in the divorce.  If they do not have representation, that is fine, but you have to ask.  And if they do have representation, then you need to ask that representation some of the following questions:

1. Has there been any signed agreements between the parties? What is the status of any agreements?

2. Who has legal custody of the children?

3. Who is in the family home? Has something happened to it? Have both parties moved?

4. Child support or alimony? Has there been any arrangements for same?

5. Some other stuff that may be pertinent to your particular clients.

Rich

 

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2 hours ago, RitaB said:

I think this is exactly why we have the due diligence requirements.  I would not take the word of either of them. And obviously you can't now.  I would make both produce evidence...

Perhaps my use of the word "make" was a little heavy-handed.  All this season, I have told my parents, "Hey, I'm sorry to ask you to do this but there is so much fraud that IRS is asking us professionals to get some evidence from the person claiming the children blah, blah, blah..."  A custodial parent can get evidence and it's all good.  Time consuming, and a pain in the ass, but good.  A noncustodial parent who has a legitimate right to claim the exemption of a child can get the signed 8332.

You've got a two HOH / three kid situation there.  I think with CTC and EIC you could see $3030 or heck, even $4040, in penalties.  I hate the requirements, too, but evidently that's the price we pay for crooks.  Some of whom are preparing returns.

(The reports of me actually murdering clients are also exaggerated, just saying.   I hardly ever do that.)

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2 hours ago, SFA said:

Does disclosure, use and privacy restrictions prevent me from telling either of them what I know?

We do not interrogate our clients. We asked routine questions of her, accepted her answers and completed her return a week ago. She just hasn't stopped to pick it up yet. That's where I am feeling stuck. 

I love these answers, but we are not mediators and now with all the disclosure rules--our hands are tied. They each came to our office as separate clients. 

I will probably tell him that in these situations it is first come, first serve. He's out. Period. After that I will tell her--we know he plans to challenge her return and see what she says.

Bummer all around. I like them both and feel sorry their marriage has come down to this.

You cannot discuss one's return, deductions, exemptions; etc with the other. I have one of these situations but both clients are very respectful of the other and are both dear friends. Fortunately, they do not fight and argue and treat each other decent. With that being said, that is the only reason that I provide service to both of them. They also agree that if a dispute erupts, then one of them has to leave. This may not be the perfect way to handle this but it is working. But... in your situation, I would definitely tell the guy he needs to go somewhere else. I also agree the 8332 needs to be signed and in your possession. The client I retained would have to provide the required documents and due to the fact you haven't filed the return and they have not picked it up, you can still separate yourself from that person as well. Furthermore, it would be worth it to refund the fee for the return you completed. Doing so will be much less expensive than paying the penalties.

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10 hours ago, BHoffman said:

Give them each forms 8332 and tell each that you can't prepare the return until you receive it back, properly filled out and signed by the other parent.  Kick the ball into their court.....

 

18 minutes ago, Terry D said:

 I also agree the 8332 needs to be signed and in your possession.

I'm not following the two suggestions about getting the 8332s.  You need that form if you're claiming someone and you're not the custodial parent.  Everybody here is wanting to claim a kid or kids that they say live with them.

Why would you tell her, after she says all three kids live with her, to have husband say they really live with him but he's letting her claim them? 

And why would you tell him, after he says one kid lives with him, to have wife say the child really lives with her but she's letting him claim him/her?

 

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SFA - I think we are allowed to talk to our clients about potential tax issues in general.  You don't have to discuss any specifics in order to talk about IRS response in general when, for instance, two parents claim the same child.  EFile rejects, the definition of custodial parent, qualifications for filing as HOH, etc.  Give each of them Pubs and highlight relevant paragraphs.

Then, I would send them both away to hash this out between themselves.  It isn't who files first that decides which kid appears on whose tax return.  They have a failure to communicate regarding who claims which kid.  You simply need to be told that information by each of them after they reach an agreement.  It's the HOH status that is the hard part

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RitaB,  I suggested 8332 because it's a way to get them discussing, between themselves, who claims which kid.  I think lying liars are intimidated by IRS forms.  I agree with you that if each parent qualifies as HOH, then 8332 isn't needed or appropriate to actually send with the tax return.  I like that form anyway because it just means the parents, custodial or not, know who is claiming the kid and I have it my file with a note saying I asked for it only to avoid confusion.

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SFA, I agree with Rich about the interrogating.  IF you still want one or either as clients, you must go back at them with more questions and absolutely must insist on documentation that you are required to keep on file as proof that you completed your due diligence.

You don't have to say anything about knowing about the other trying to claim the kid, just talk about the IRS requirements and the crackdown on fraud in these areas and potential penalties that could be imposed on you, and that professional ethics requires you to delve deeper.  Blame it on the software if you have to, such as it is giving red warnings about unanswered questions and won't allow you to release or file any return without having this information entered. 

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Thank you everyone. This is good advice. First thing this morning, she was here to pick up. I told her I am aware there is a challenge, and reviewed with her the F8867 questions. Together we read the tie-breaker rules. She accepted that we cannot file the return at this point without further proof and due diligence info. She will either provide proof documents or remove the dependent. Her return is now on hold.

About his return--it's Saturday, he is out-of-town, so he is also on hold. We will most likely return his paperwork.

 

 

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One of our DD rules:  know or should have known.  When you first interviewed her, you knew what you knew and prepared her returns that way.  Now you know other things that require you to ask more questions.  That first divorcing year is especially hard on preparers, because both parents may have lived in the family home with all the kids more than half the year and feel entitled, have attorneys not familiar with tax law telling them they're entitled, are used to being your clients, expect you to counsel them, and are angry/frustrated/scared/whatever.  Each case is different, but choosing zero or only one probably lets you sleep better.  Neither client will trust you quite as much ever again, because you do know their ex.  If you love them both, then think of two local preparers you respect and send one to each.

And, you can NEVER say anything to one that you learned from working with the other, from his documents, from his lawyer, nothing at all.

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On ‎03‎/‎25‎/‎2017 at 9:04 AM, SFA said:

Thank you everyone. This is good advice. First thing this morning, she was here to pick up. I told her I am aware there is a challenge, and reviewed with her the F8867 questions. Together we read the tie-breaker rules. She accepted that we cannot file the return at this point without further proof and due diligence info. She will either provide proof documents or remove the dependent. Her return is now on hold.

About his return--it's Saturday, he is out-of-town, so he is also on hold. We will most likely return his paperwork.

It's sounds to me like you are handling this in a prudent and professional manner.  I see no compelling reason why you should "Fire" her.

Regardless of what you know about her ex husband's intent, you should determine if she is entitled to claim any of the dependents. That is your responsibility and maybe was overlooked before her return was completed.  You do not want to be in a position of allowing her to claim any of the dependents (or related credits) and then have them disallowed after the refund check is spent.

In regards to your concern about preparing ex husband's return, see section 10.29  (authority for circular 230) for what is allowable when you have conflict of interest, esp.(b)(3). You might not even have one. Conflict of interest is more of an issue during the divorce process.  Here are a couple of articles you might want to look at:

https://www.aicpastore.com/Content/media/PRODUCER_CONTENT/Newsletters/Articles_2010/Wealth/DivorcingClients.jsp

http://www.thetaxadviser.com/issues/2011/nov/tpr-nov11.html

I have some excellent CPE material on this subject but unable to post a link. You are the best judge of this situation and should follow your instinct and professional judgment.  As the AICPA article implies, why "fire" a loyal client who seeks your trusted advice unless there is some compelling reason to do so.

 

*************************************************************

§ 10.29 Conflicting interests.

(a) Except as provided by paragraph (b) of this section, a practitioner shall not represent a client before the Internal Revenue Service if the representation involves a conflict of interest. A conflict of interest exists if -

  (1) The representation of one client will be directly adverse to another client; or

  (2) There is a significant risk that the representation of one or more clients will be materially limited by the practitioner's responsibilities to another client, a former client or a third person, or by a personal interest of the practitioner.

(b) Notwithstanding the existence of a conflict of interest under paragraph (a) of this section, the practitioner may represent a client if -

  (1) The practitioner reasonably believes that the practitioner will be able to provide competent and diligent representation to each affected client;

  (2) The representation is not prohibited by law; and

  (3) Each affected client waives the conflict of interest and gives informed consent, confirmed in writing by each affected client, at the time the existence of the conflict of interest is known by the practitioner. The confirmation may be made within a reasonable period after the informed consent, but in no event later than 30 days.

(c) Copies of the written consents must be retained by the practitioner for at least 36 months from the date of the conclusion of the representation of the affected clients, and the written consents must be provided to any officer or employee of the Internal Revenue Service on request.

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