Is Materiality considered when amending taxes?

[Pacun]

This is a hard field to compare value. Most preparers, me included, don't like to give prices over the phone because that simple return isn't, and unless someone you know recommends their preparer to you, I can't give you references that you can contact because I can't give out the names of my clients. And a lot of it is taken on faith - someone can sound knowledgeable, but unless you are equally educated in that field you really can't judge. And if you are equally educated, you would probably be doing your own return.

Excellent point. 100% in agreement with you.

The ones that participate heavily on this forum are knowledgeable and ethical preparers. Even here, where the level of knowledge is similar, we have issues coming to a consensus.

I remember what an IRS revenue agent told me: In most cases, there is not such a thing as 100% compliance but acceptable compliance.

I said, now that you mention it, 7 years ago, I forgot to declare $30 that my friend gave me when I drove him to the airport and I also found a 20 bill a couple years ago in the parking lot. I thought I was in compliance 100% but I guees not.

Do you think, the IRS prefers 100% compliance and I should amend my return for those $20? Or do you think materiality is considered by the IRS?

How about if I forgot to report $40, $100, $300, $1000?

[Margaret CPA in OH]

Pacun, you raise what may be good points here but I think they are more philosophical. The $30 for gas might be considered income except it is more likely a reimbursement for expenses incurred and would not be payment for an activity engaged in for profit. The found $20 I would view more as a gift. You did nothing to receive it. Generally speaking, and it is a generalization, it appears that reportable income is income defined in the tax code and specified in the instructions for the tax return. I did not find reimbursements for gas for taking someone to the airport or found money even under line 21, other income.

If it is important to _you_, by all means amend your returns. Given the specific examples that you cite, it would not be reportable income to me. I don't believe it is a materiality issue so much as source of income. I invite you to educate me on reporting found money or reimbursements. I certainly don't know it all. If I found hundreds of dollars, I would most likely donate it after trying to find the loser first, though!

[Pacun]

I thought everybody knew that money found is taxable because it is not excluded by the code. Reimbursements only happens from your employer. Payment for taking someone to the airport is "payment for services". I have not seen "reimbursement for services" in the code. Maybe in an employer-employee relationship something similar happens.

[Margaret CPA in OH]

Thanks for educating me about found money. I honestly did not know that. I will begin keeping track of the change that I find on my runs.

I would appreciate cites for the reimbursement of gas money for a trip to the airport as payment for services when not in the position of employment. If this is so, there must be millions of us that wilfully, albeit unknowingly, violate this. Perhaps most folks would consider it a gift because it is at least likely that the person 'providing the service' would not set a charge or even truly expect money for helping a family member or neighbor get somewhere.

Still, there may be something to the materiality aspect that you raise. More research!

[Pacun]

That's why 100% compliance barely exists.

I always said: People are as honest as the scrutiny they go through.

When someone is appointed to a government position, I really feel their pain because they go through a lot of scrutiny. A lot of people would not pass that type of scrunity. I wonder if the IRS would decide to audit their taxes for the last 10 years. Would they pass?

[ILLMAS]

Materiality - Amending a client return for $20, $30,... $500 and to charge him a minimum of $150 to amend a return, you decide if it's worth it? Now here is the question to you, what do you consider materiality? Any where you look (books, IRS) there is not such amount as material, you have to make a reasonable judgement as to what is materiality. Last year one of my associates client was being audited by the IRS, you always want to know in what industry the auditor has work, in this particular case the auditor was a tax manager at a CPA firm prior to joining the IRS, once we knew his experience we knew he would want to see pretty much line for line of everything on the tax return. Well that was the case, we gave him support of everything he asked for, now this is a multi-million dollar company, meals of 30K for a +10M company were being deducted 100%, so we were trying to reason with him and telling him the amount was so inmaterial for the amount of revenue the company generated, and he said no, not to him and as the auditor he has the right not to agree with us. Anyway we talked to his supervisor and he agreed the amount was inmaterial in his eyes, but it was the decision of the auditor not let go of the finding. Now if you were get someone who was an auditor for an accounting firm, they have a better sense of what is materiality, because of the years they deal with it and have a better understanding.

If I may add, the auditor was a real prick, the day he came to pick up the check for the balance due, the check included amounts for the shareholder and he asked me why the shareholders didn't make a check out from their accounts and if they were going to pay it back to the corporation, what the hell does he care, tax and interest was paid in full!!!

[Margaret CPA in OH]

My first accounting position was for a smallish firm outside of Boston. The owner actually did over a million in billing back in 1986 but most records were still in his home office. He was audited the second year I was there and told the story of his wife's experience with the auditor. After about 3 looooong days of combing over every little detail, the auditor challenged the wife with a single $100 deposit in the checking account which didn't have a notation such as reimbursement, gift, whatever. By this time this little, middle aged woman used to going out daily was so frustrated that she yelled at the auditor that it was payment from a John she picked up.

Materiality - $100 in the context of well over a million...

[Kea]

I have a client who works for the IRS. This year she brought in a receipt for Jury Duty for $90 for 2009. She found it while gathering her 2010 info. She's in the 15% tax bracket so it only adds $13 - $14 to her taxes. But because she works at IRS, they are held to a higher standard. She also said her boss would help her file the amended so that it wouldn't cost her anything. I would have really felt bad charging her for such a small amendment. I'm glad she could do it free. (No, her boss was not willing to file her annual returns free, even though they are probably easier than the amendment.)

[ILLMAS]

IRS agents cannot prepare tax returns for others, they are breaking their own rules LOL :)

[Kea]

My client is a file clerk. I don't know what her boss' title is. Is any employee considered an agent?

Also, I'm not sure that the boss was "preparing" the amendment, or just showing her how to do it.

I do know that even though my client's return is pretty basic (W-2, 1099 INT, 1098 & RE tax), she doesn't want to take any chances of doing it herself -- since she is held to that higher standard.

I'm not looking to get anybody in trouble here!

[kcjenkins]

I have been told twice, by two different auditors, that they do not want to make changes to a t/p's file if the difference in the tax is less than $50. It costs the government more to process the amendment than they get.

So I'd say the materiality test is not how much income, but how much change in tax liability. And that if it is less than $50, there is no need to file an amendment. An IRS employee may feel the need to file for less change, but it's highly doubtful that the amendment would be 'required' for a change of $13.