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ILLMAS

Extra asset

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Former TP moved and was having their tax return by a preparer close to them, in 2015 somehow the  new preparer put a $40K asset (7 yrs) retro to 2011.  I prepared the clients returns from 2011 to 2014 and I don't have any record of that asset nor the client remembers making an improvement of that magnitude, so 2015 to 2017 each year has about $5,715 extra of depreciation and the TP took advantage of the deduction, I recommended for the client to have the prior preparer correct it (or prepare 3115) and made them aware they might charge them or that I can correct it for them and I would charge them XXX, TP thought about it and asked me if they can just include the excess (as income) depreciation in 2018, I was stumped with the question and I wanted to see if this is an option?   I seen something like this before work for a TP that was treating himself as contractor, IRS auditor passed on converting the TP to an employee because the TP was reporting 100% of the earning without any expenses.

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Isn't that what Form 3115 does, makes a 481a adjustment in the current year as a positive or negative amount?

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6 minutes ago, Lion EA said:

Isn't that what Form 3115 does, makes a 481a adjustment in the current year as a positive or negative amount?

Exactly. plus when it's a positive adjustment you get a four year forward spread.

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Why not have the client ask the prior preparer where the amount came from? On what basis was it put into the tax return?

What other schedules in the return does that calculation effect? SE Tax? Pension Deduction? AMT? QBI (or hasn't 2018 return been done yet)?

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7 hours ago, Evan S. Golar said:

Why not have the client ask the prior preparer where the amount came from? On what basis was it put into the tax return?

Agree, client should get asset detail.  Sounds like preparer mistake, maybe put in wrong date asset was placed in service.

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I was finally able to get a depreciation report (rental property, no SE)  for 2015 to 2017 and the prior preparer did add an asset that doesn't exist, so I will be correcting it in 2018. 

 

 

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As others have said, the 3115 with a section 481 adjustment will do the correction with the benefit of a four year forward window to spread out the payback.

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