LSmith33 Posted July 21, 2007 Report Share Posted July 21, 2007 I've had this client for the past four years. He is an elderly gentleman (80) on a very limited income. His ex-wife has been bringing me her, her daughter's and his return for at least the last four years. He works a part time job and receives a small pension and social security. I've been using Form 1040A in the ATX software for his return. He received a letter from the IRS about his 2005 return and they claimed he owed $938 plus interest and penalties. His ex-wife called me to question me about the notice and upon reviewing it, I noticed that I had been entering the medicare amount as federal tax withheld on the SS Benefits worksheet. I am so used to putting that number where I thought it belonged (and is that way on the SS benefits worksheet for the 1040) that I didn't pick it up in 04, 05 or 06. He now owes the government $2,799. ($799 from 04, $938 from 05, and $1062 from 06). Oh my God!! I can't believe I did that for three years and that I didn't catch it. I usually do add the withholding to make sure that I have the correct amount on the return. I really goofed up big time. I don't think I've done that on anyone else's return because I don't usually use 1040A. I always use the 1040. What am I going to do? My stomach is in knots. I've never goofed this bad before. I am very upset and feel absolutely terrible. I just can't believe it. The ex-wife didn't really say much on the phone, she said she was going to consult with her daughter and get back to me. I did offer to pay the interest and penalties on the 05. I can't imagine why the IRS didn't pick this up on the 04 return, but I'm sure it's only matter of time before they pick up the 06. ~Laura J. Smith Quote Link to comment Share on other sites More sharing options...
Tax Bird Posted July 21, 2007 Report Share Posted July 21, 2007 I've had this client for the past four years. He is an elderly gentleman (80) on a very limited income. His ex-wife has been bringing me her, her daughter's and his return for at least the last four years. He works a part time job and receives a small pension and social security. I've been using Form 1040A in the ATX software for his return. He received a letter from the IRS about his 2005 return and they claimed he owed $938 plus interest and penalties. His ex-wife called me to question me about the notice and upon reviewing it, I noticed that I had been entering the medicare amount as federal tax withheld on the SS Benefits worksheet. I am so used to putting that number where I thought it belonged (and is that way on the SS benefits worksheet for the 1040) that I didn't pick it up in 04, 05 or 06. He now owes the government $2,799. ($799 from 04, $938 from 05, and $1062 from 06). Oh my God!! I can't believe I did that for three years and that I didn't catch it. I usually do add the withholding to make sure that I have the correct amount on the return. I really goofed up big time. I don't think I've done that on anyone else's return because I don't usually use 1040A. I always use the 1040. What am I going to do? My stomach is in knots. I've never goofed this bad before. I am very upset and feel absolutely terrible. I just can't believe it. The ex-wife didn't really say much on the phone, she said she was going to consult with her daughter and get back to me. I did offer to pay the interest and penalties on the 05. I can't imagine why the IRS didn't pick this up on the 04 return, but I'm sure it's only matter of time before they pick up the 06. ~Laura J. Smith Geez Laura....you certainly have my sympathies. I read your post and thought 'there but for the grace of God go I'. As a sole practitioner with no other office assistance I live in dread of situations like this. Make it up to them the best way you know how. Let them know, without excuses, that you messed up. Thank them even for helping you to identify a flaw in your system of Quality Control. Were I in your situation, I would amend the 2006 for free and offer 2007 either free or at the lowest rate you can afford. I might even send a gift with a formal apology. In the meantime, forgive yourself your humanity. We are all vulnerable to mistakes, especially those of us who fly with no net. Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted July 21, 2007 Report Share Posted July 21, 2007 Laura, this just proves you are human, not that you are bad. Give yourself some forgiveness here. Stop beating yourself up, it was an honest mistake. Just don't use the 1040A any more. I'd amend the 06 now, so that you stop interest running on it now. And I would ask for abatement of penalties on all the returns, based on the fact that it was the preparer that made the error. This is almost always given in such a case. Then you pay the interest, even though in fact you should not be responsible for it, since the client had the use of the money, not you. But it's a public relations expense to you, rather than an issue of fair or not, IMHO. Quote Link to comment Share on other sites More sharing options...
Lion EA Posted July 21, 2007 Report Share Posted July 21, 2007 Amen to everyone's comments. Relax. We're in a profession where we're working against a deadline, many of us as sole proprietors with no employees, and we're human. Amend 2006. Write a letter asking abatement of penalties. Apologize and offer to reimburse interest. I like the gift idea, can be as simple as a bouquet of flowers you assemble from your own cutting garden. Don't regret the past; learn from it. Highlight the FIT w/h boxes before you start inputting data so you can continue your practice of adding the w/h before printing or transmitting the return. Best yet, ALWAYS use Form 1040. Why use three different forms with things in different places when you can use one form for all your personal return clients. It's easier for you to concentrate on one form, and your clients won't feel their returns are so easy that they have the A or EZ to show for their preparation fees. Again, relax. You'll get through this. Quote Link to comment Share on other sites More sharing options...
OldJack Posted July 22, 2007 Report Share Posted July 22, 2007 I would write the client a check for the full amount of whatever the client has to pay the IRS. The client will be happy and you will get your money's worth in goodwill and advertising to everyone the family tells. If you don't do that you will probably NOT have any new clients coming your way for some time. IMHO Quote Link to comment Share on other sites More sharing options...
JohnH Posted July 22, 2007 Report Share Posted July 22, 2007 Laura: You have my sympathy as well. I'm a sole practitioner also and have made my share of mistakes over the years, usually under deadline pressure. I agree with the other posts in suggesting that you not use the 1040A or EZ in the future. One question - did your error create refunds? If you entered the Medicare as W/H tax, then it is possible that he received refunds in excess of his withholding. If that is the case, then a careful analysis might help them to understand the situation better. Except for some people who qualify for the EIC, most people understand the concept of not getting something they didn't earn. You should still try to get the penalties abated and reimburse the interest, even pay the net tax due as Old Jack suggested if you are in a position to do so, but if my hunch is right then you may find the client even more understanding than you first imagine if you just lay out the facts for them. Quote Link to comment Share on other sites More sharing options...
TAXBILLY Posted July 22, 2007 Report Share Posted July 22, 2007 I've made bigger ones myself over the years. I picked up one clients gross wages as $72,000 when it fact it was $92,000. Those were the days of carbon copy W-2s. The IRS tried to impose an underpayment penalty which I succeeded in abating and I paid the interest on the debt. taxbilly Quote Link to comment Share on other sites More sharing options...
TAXBILLY Posted July 22, 2007 Report Share Posted July 22, 2007 Another reason to just do 1040s. I stopped doing 1040EZs when I realized I had some clients who were entitled to the retirement savings contribution credit. taxbilly Quote Link to comment Share on other sites More sharing options...
michaelmars Posted July 23, 2007 Report Share Posted July 23, 2007 i feel for you too and agree wit KC [as usualy]. amend the returns, reimburse for interest and request a penalty abatement. I also agree with the others that stated never use a short form. I use only the long forms, and thus never have to think about the input. Quote Link to comment Share on other sites More sharing options...
Monkeyman Posted July 23, 2007 Report Share Posted July 23, 2007 Wow, it takes a lot of guts to admit something like this to your peers. Give me the kitten in that picture so I can SQEEZE it :lol: Quote Link to comment Share on other sites More sharing options...
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