What do you think?

[Eli]

A gentleman had his 2005 return prepared at Jackson Hewitt. They left off the 10% penalty for early withdrawl of retirement plan. The retirement withdrwal was included. I advised him to call JH and see if they would pay for the interest (about $113.00)portion of the bill. They asked him to take the paperwork so they could look at it. They told him the software should have caught it, but that there had been a change in the coding for retirement plans and that the software didn't pick up on it. They also told him they wouldn't pay for the interest unless he had purchased the "gold plan" or something like that.

Do you think this is something they should pay for anyways? Should I recommend that he visit the BBB or maybe try visiting the office again??

Thanks!

Eli

[jainen]

>>They also told him they wouldn't pay for the interest unless he had purchased the "gold plan"<<

Tell him to take this statement from the J-H website to the office manager, and say they have three minutes to pay him the $113 out of petty cash or he will file a complaint with the local District Attorney Consumer Affairs.

"Q: Do you stand behind your work?

A: When you pay for tax preparation at Jackson Hewitt, you are automatically covered under our Basic Guarantee which entitles you to reimbursement of penalties and interest charged by a taxing authority if a Jackson Hewitt tax preparer makes an error preparing your tax return. For an additional fee, you can purchase the Gold Guarantee® for extra, worry-free coverage. If you purchase the Gold Guarantee and a taxing authority notifies you of an error on your tax return, contact Jackson Hewitt, present your Gold Guarantee Certificate, and we’ll work with you to resolve the issue, which may include reimbursement for any additional tax liability or reduction in your refund amount up to $5,000. Ask your tax preparer for current pricing of the Gold Guarantee and a copy of the Jackson Hewitt Commitment to Quality brochure which explains our guarantees, their terms and conditions."

[Eli]

Jainen,

Thanks so much for that info. I just called him and advised him of your response. I emailed him the response & the website for JH.

He's going back tomorrow!!

Thanks again!

Eli

[jainen]

>>He's going back tomorrow<<

In my opinion, he has a claim for the entire 10%. It's not a tax, but a penalty the IRS assessed after JH mischaracterized the income that was plainly identified on the 1099-R.

[MAMalody]

Hmmm. I've always called it an excise tax. Boy, I guess I was off base.

[jainen]

>>I've always called it an excise tax<<

Well, of course that's what Jackson-Hewitt is going to argue. You don't work for them, by any chance? And I suppose in a narrow, legalistic sense you could claim that's what Code Section 72(t) says. But the way our system works, is that the law is interpreted by the courts. It is certainly not hard to find numerous court rulings that interpret it as a penalty. For example, TC Memo 2004-111, "10% early distribution penalty was upheld against married taxpayers who received distribution from qualified retirement plan."

Besides, the guarantee is not couched in narrow legalistic terms. If you want to be legalistic, you have to resolve any ambiguities in favor of the party who did not write the document.

[OldJack]

Original post:

>>A gentleman had his 2005 return prepared at Jackson Hewitt. They left off the 10% penalty for early withdrawal of retirement plan. The retirement withdrawal was included.<<

Call it what you want but JH should not have to pay the "10% penalty for early withdrawal" as that was owed by the taxpayer had JH not made a mistake. If the IRS had not caught it should the taxpayer have paid it to JH since the taxpayer really owed it? Of course it would be good advertising for JH to pay it.

[MAMalody]

<<<Call it what you want but JH should not have to pay the "10% penalty for early withdrawal" as that was owed by the taxpayer had JH not made a mistake. If the IRS had not caught it should the taxpayer have paid it to JH since the taxpayer really owed it? Of course it would be good advertising for JH to pay it. >>>

In spite of others verbal gymnastics, OldJack is right. Unfortunately, a client missed a RMD, I paid the penalty and they were clients until the day they died and they did not hesitate to recommend me to others.

[jklcpa]

I call it an additional tax. It is stated as "10-percent additional tax" in the code, pubs, instructions & the forms. Commonly it is called a penalty, including tax preparers.

My policy is as OldJack stated. If the taxpayer would have owed the additional taxes with a properly prepared return, then I would not be reimbursing for this item. However, I would pay any interest or other penalties that may be involved related to the error.

[jainen]

>>that was owed by the taxpayer had JH not made a mistake<<

I have several points to make about that. First, it is irrelevant. The guarantee does not apply when they DON'T make a mistake. For example, it isn't "satisfaction guaranteed." It only becomes a question when they DO make a mistake, like this.

Secondly, the guarantee is not limited to certain kinds of penalties or certain reasons for a penalty. It is simply, IF they make an error. Nothing about "our error leads to the penalty." And this particular penalty is indisputably related to the item that JH got wrong.

Besides, this penalty WAS in fact caused by the JH error. They reported that the income was not an early distribution (or at least that an exception applied). If that had been correct so they did not make an error, there would be no penalty. It is only because that was wrong--because they DID make an error--that the 10% penalty was imposed.

(For jklcpa, the original post is not about YOUR policy, which is a good one. It is about Jackson-Hewitt, your competitor, who apparently advertises more than they are really willing to deliver.)

[zeke]

Jainen said:

"In my opinion, he has a claim for the entire 10%."

Is first, an opinion. Second, please note the word "claim" which is subject to braod interpretation.

In my opinion, Jainen's above comment should not be criticized.

[Pacun]

It seems that Doctors and Lawyers, since they study more than most of us, have better loyalty to their profession. I have never seen a doctor putting down another doctor. But some tax preparers don't miss an opportunity to do so. I have to admit, I always commented about the little mistakes other preparers made, but lately, I have only mention mistakes when there is a need to amend a return.

While tax preparers do this, Tax Payers will come with wierd questions, listen to your answer, modified and go to another preparer with the modified story. Another thing that I have noticed, is that most of us don't use profession standards when we charge for our services as H&R and JH do. I have to admit that I do not charge enough but this is not my primary job and therefore it is more like a hobby... I charge not even half what H&R and JH charge and I have more knowledge and experience than most preparers there.

[OldJack]

Besides, this penalty WAS in fact caused by the JH error. They reported that the income was not an early distribution (or at least that an exception applied). If that had been correct so they did not make an error, there would be no penalty. It is only because that was wrong--because they DID make an error--that the 10% penalty was imposed.

This penalty was in fact caused by the taxpayer.

A gentleman had his 2005 return prepared at Jackson Hewitt. They left off the 10% penalty for early withdrawal of retirement plan. The retirement withdrawal was included.

Jainen, what is it about the original post that says "They left off the 10% penalty for early withdrawal of retirement plan" that you don't understand. The error was clearly that the taxpayer owed the 10% penalty and it was not on the original prepared tax return. JH did not cause the early penalty, the taxpayer did, with the IRS recognizing it had been left-off of the tax return.

[OldJack]

It seems that Doctors and Lawyers, since they study more than most of us, have better loyalty to their profession.

I must take exception to your conclusion. I believe that, as a CPA, I study much more than any doctor or lawyer and participation on tax forums is not to put anyone down it is to discuss and study more than doctors and lawyers. I have both doctors and lawyers as clients and at least the ones that I have are not all that smart.

edit: and to show them I am a professional, I usually charge doctors and lawyers twice as much as anyone else.

[Pacun]

"It seems that Doctors and Lawyers, since they study more than most of us, have better loyalty to their profession"

That's why I said "most of us", meaning most of us tax preparers. Does any one know the ratio between CPAs and none-CPAs that prepare taxes?

[jainen]

>>JH did not cause the early penalty, the taxpayer did<<

That's okay. I don't have to restate my reasoning on that point. I could take either position, depending on if I were arguing for or against the client.

But what about my contention that the point is irrelevant? Jackson-Hewitt guarantees they will pay the penalties, with no fine print about why there are penalties or who caused them. That is their own promise, undoubtedly well-vetted by their attorneys. It is very different from the H&R Block guarantee which only applies when "penalty and interest charges are assessed due to H&R Block's error."

I think the only valid argument there is whether the 10% is in fact a penalty or an additional tax. I believe that it functions as a penalty and is generally considered so by tax professionals and, as I showed, by tax courts.

[Eli]

I still think they made a mistake by leaving off the 10% penalty. If they had done the return correctly, he would not have received the letter from the IRS & he would not have owed the additional interest.

Eli

[OldJack]

I think the only valid argument there is whether the 10% is in fact a penalty or an additional tax. I believe that it functions as a penalty and is generally considered so by tax professionals and, as I showed, by tax courts.

It is an additional tax:

10-percent additional tax on early distributions from qualified retirement plans

[jainen]

>>QUOTE(Code §72(t)<<

Now, now, Old Jack. I'm surprised at you. Would you give up so easily simply because the client is totally wrong and the tax code is perfectly clear? That seems pretty flimsy to me.

[kcjenkins]

I still think they made a mistake by leaving off the 10% penalty. If they had done the return correctly, he would not have received the letter from the IRS & he would not have owed the additional interest.

Eli

That is correct. He would have owed the 10% tax, just not the interest. Still, given the way that ad is worded, I think they could be held to paying both the tax and the interest, in this case. Had I made the error, I would not pay the tax, which was the client's tax because he owed that because he pulled the money out early. I would not pay the interest, in many cases, because the client had the use of the money, not me. I would sometimes pay it as 'customer relations'. I would always pay any penalty added due to my omission or error. That would not include penalties due to his actions. only those due to my actions.

But that is because I would not ever word an ad or guarantee the way they worded that one.

[OldJack]

>>That seems pretty flimsy to me. <<

I'm just a flimsy guy! :P

[taxxcpa]

That is correct. He would have owed the 10% tax, just not the interest. Still, given the way that ad is worded, I think they could be held to paying both the tax and the interest, in this case. Had I made the error, I would not pay the tax, which was the client's tax because he owed that because he pulled the money out early. I would not pay the interest, in many cases, because the client had the use of the money, not me. I would sometimes pay it as 'customer relations'. I would always pay any penalty added due to my omission or error. That would not include penalties due to his actions. only those due to my actions.

But that is because I would not ever word an ad or guarantee the way they worded that one.

It is only logical to conclude that JH should only pay any amount over and above what the client would have owed if the 10% early withdrawal tax had not been omitted. The client owes the 10% and if JH pays the interest plus any late penalty, the client, in effect, has just received an interest-free loan of the 10% early withdrawal tax.

[jainen]

>>It is only logical to conclude that JH should only pay any amount over and above what the client would have owed<<

I don't understand that logic at all. Please explain your premise and how you reached such a conclusion.

It seems to me that the only thing JH "should" pay is what they put in their guarantee. It says what it says, and it doesn't say what it doesn't say. How does what the taxpayer might otherwise have owed figure into that? If it had been up to you or me, the guarantee would probably be very different, more like H&R's. But it wasn't, and it isn't.

[JohnH]

I'm with jainen on this one.

While most of us assume that common sense would dictate that we pay additional penalties and interest assessed on the "AMOUNT WHICH WOULD HAVE BEEN DUE" as a result of our errors, and our guarantees should express it in those terms, a careful reading of JH's guarantee doesn't make that distinction. The wording of their guarantee basically says that if they prepare your return and you are later assessed a penalty, they will pay it plus the interest. It doesn't make any distinction between penalties resulting from a balance due and penalties which were not calculated on the original return. I think this taxpayer is definitely due the addtional penalties & interest resulting from the error, and with a little creative pressure on JH they might be able to get them to pay the entire amount.

[jainen]

>>a careful reading of JH's guarantee doesn't make that distinction<<

Thanks, John. I appreciate you and KC helping to nail that down. As a follow-up, I think it is reasonable to believe that this wording is not accidental. Big corporations are usually exceedingly careful about what they promise. JH probably saw a competitive advantage in having a broader guarantee than H&R. I think the taxpayer has an excellent chance filing a truth in advertising complaint and suing in small claims court.

My other point is more obscure. What exactly was the error in preparation? Was it that if the tax return had properly reported the income the 10% would have been assessed? Or was it that if the income had actually been as reported, the 10% would not have been assessed?