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[kcjenkins]

Note in the Fall 2009 Board of Accountancy Update that a CPA was suspended and disciplined and ordered to pay $12,000 of investigative costs for failing to report minimal or no compensation income on the returns of an S Corp that made that had substantial income.

There is no note of suspension or other disciplinary action by IRS, so this was probably a situation where the client incurred substantial employment taxes and penalties and the client (or a sucessor CPA or an attorney) filed a complaint with the Board.

Be careful out there folks.

Kip Dellinger, CPA

Kalllman And Co. LLP

Los Angeles, CA

[ed_accountant]

This case is listed in the fall 2009 CA Board of Accountancy (CBA) newsletter that is sent to Ca Cpas. No officer compensation was the main act of negligence that the IRS discovered during an audit of years2004 -20006. She was also found negligent on other issues..

http://www.dca.ca.gov/cba/discipline/index_w.shtml#507

Ms. Wong admits the truth of each and every charge and allegation in the Accusation No. AC-2009-26 with the exception of the charge of gross negligence and repeated acts of negligence regarding the corporation reporting minimal to no officer compensation. For the purpose of resolving the Accusation, Ms. Wong agrees that, at a hearing, Complainant could establish a factual basis for the allegation noted above and that the allegation constitutes cause for discipline.

Accusation No. AC-2009-26 contains the following allegations:

Ms. Wong was grossly negligent and committed repeated acts of negligence in preparation of the complainant's corporate tax returns for the years 2004 through 2006. Ms. Wong reported minimal to no officer compensation for those years even though the corporation had substantial income and the complainant was the sole shareholder and performed all but a minimal amount of the work for the corporation. The corporation is an S-corporation. Ms. Wong allowed nearly all of the corporation's profits to pass to the complainant as distributions without paying the required employment taxes. The complainant and his corporation were audited by the Internal Revenue Service (IRS) and as a result the corporate tax returns were adjusted to report additional officer compensation of $63,000 in 2004, $64,000 in 2005, and $75,000 in 2006. Penalties were assessed.

Ms. Wong also reported a $20,700 bad debt deduction on the 2005 corporate tax return even though the corporation reported its income on the cash basis and had not reported this amount as income on a previously filed return. Ms. Wong also reported a pension deduction on the 2005 corporate return in excess of 100 percent of its employee compensation, even though a deduction of only 25 percent of employee compensation is allowed. Upon IRS audit the bad debt deduction was denied and the pension deduction was reduced.

Ms. Wong also earned commissions on an annuity sale and mutual fund sales she made to the complainant and failed to disclose to the complainant in writing that she would be receiving a commission.

Ms. Wong also practiced under the unregistered name of BC Services while performing services for the complainant.