Can taxpayer sign that this return is a true, correct and complete return

[Bart]

When a taxpayer signs a tax return they sign under an statement (jurat) that says:

"Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge."

Taxpayer is an employee of a C Corp. Taxpayer is also a 50% shareholder in that C corp and signs on the bank account and signs payroll tax returns.

Taxpayer knows that payroll taxes are not being paid. Taxpayer has a W-2 that shows withholding. When taxpayer files the return it will show an overpayment and generate a refund.

Can taxpayer sign the return pursuant to the jurat above?

[Janitor Bob]

When he signs the return, he is signing under the statement for his personal return. He is not stating anything about what he does or does not know about the corp. It sounds like it is correct...taxes withheld....The fact that the payroll taxes were not paid to the appropriate agency is a matter un-related to his personal return.

In the end, he may be getting into trouble in relation to the corporation and false payroll tax returns...I'm not a lawyer, but it sounds bad...but I would think his personal return would be OK. However, this is not my area of expertise and I look forward to others educating both of us on this

[Terry D EA]

The signature line on the 1120 form has the same statement. Many people sign tax returns they know full well are not accurate. Most of the time the inaccuracy comes from the client's books. Again, many folks know what is going on in their companies and are not clueless regarding their tax position. The officer who signs the return, just as the individual, is responsible for every line and figure on that return. If your client is not properly reporting payroll withholdings, then it is on him completely. Your eithical responsibility in this situation is to walk away. By your statement you have knowledge of what he is doing which can come back to you. Part of the jurat statement includes the declaration of the preparer that you prepared the return based on the knowledge you have as provided by the tax payer. Be careful with this and personally I would tell this guy to take a hike. I pulled an engagement last summer because of a client willfully mis-classifying employees as sub contractors.

So, simply put, yes this guy can perjure himself and sign the return. When he gets caught, he will get a triple whammy, one for the C-Corp and one for falsifying his individual return and again for the incorrect payroll returns. I agree with JB that it sounds bad, but it is bad.

[JohnH]

You said that the payroll taxes haven't been paid, but have the payroll tax reports been filed? These are two separate but very important issues related to the validity of his w2 form.

If the payroll tax reports have been filed without the payroll taxes having been paid, I think he is ok with respect to filing his personal return. But if the payroll tax reports have not been filed, he has multiple problems signing the return. And I agree, I probably would not prepare the return except in very unusual circumstances.

In any case, unless the payroll taxes are paid, at some point he's looking at a Trust Fund Penalty assessment when it all winds down.

[Jack from Ohio]

Are you willing to sign a return as a preparer when you KNOW the information is not accurate? Just sayin...

[Bart]

Are you willing to sign a return as a preparer when you KNOW the information is not accurate? Just sayin...

My question has to do with the taxpayer signing not the preparer signing. The preparer signing is a different discussion.

Preparer does not KNOW the payroll taxes are not paid. Preparer has only heard this rumor thru third parties and has not seen any IRS notices.

[Bart]

You said that the payroll taxes haven't been paid, but have the payroll tax reports been filed? These are two separate but very important issues related to the validity of his w2 form.

In any case, unless the payroll taxes are paid, at some point he's looking at a Trust Fund Penalty assessment when it all winds down.

Payroll tax reports are filed. Taxpayer realizes they will have a Trust Fund Penalty problem. That is on the corporate side. Question is can the taxpayer sign their personal return.

[Jack from Ohio]

My question has to do with the taxpayer signing not the preparer signing. The preparer signing is a different discussion.

Preparer does not KNOW the payroll taxes are not paid. Preparer has only heard this rumor thru third parties and has not seen any IRS notices.

Just what is due dilligence in this case? Should the preparer ask? Wonder how a compliance officer would view the "rumor only" defense??

Not me. Too much to lose to assist someone delay responsibilities he should have already taken care of. And it is NOT HIS MONEY on top of that.

Run Forest Run!!

[JohnH]

If payroll tax reports have been filed, then his W-2 is correct (if it agrees with the payroll tax reports & records). I'll be interested in hearing if anyone else has a different opinion based on this new information.

He and the corp are two separate entities, and the 50% ownership doesn't change that fact. (Although it may be used against him if they get to the trust fund penalty phase. But that probably doesn't matter since you already said he signs on the company bank accounts and is aware of the underpayment). Since he already knows the Trust Fund Penalty is hanging out there, he should be taking steps to mitigate it by seeing that payments from the corp are deginated to cover Trust Fund withholdings first. There's a very specific procedure for how this is done. Otherwise, he's facing a snowball effect down the road.

In any event, I probably wouldn't prepare the return. And I'd be sure he understood that any input I provided to him can, may, might be changed by IRS when they get their hooks in him.

[Pacun]

As long as you are preparing his personal taxes ONLY and you have an engagement letter signed by the tax preparer you should be OK. If you prepare the payroll and/or the corporation's return along with this 50% owner, you will have a problem regardless if you have an engagement letter. By the way, don't understimate the power of an engagement letter.

Now, if the client confessed to you that he didn't pay the payroll taxes, you might have a problem. Remember that the first thing this taxpayer will say during the payroll audit: "my taxpreparer knew about this". So, Run Forest Run (and don't look back) might be a good advice.