Heartwarming Story

[jainen]

What do you think of this? Link to preparer error

The return omitted one of 160 information returns. The taxpayers blamed the preparer, but Tax Court said no. This was not a case of reliance on aberrant advice--they had a duty to review the return for accuracy.

[TAXBILLY]

http://scholar.google.com/scholar_case?q=woodsum+vs+commissioner&hl=en&as_sdt=2,10&case=1485065275914201281&scilh=0

taxbilly

[rfassett]

Obviously the preparation firm needs to re-think their review process. I hope they were paid well because I would doubt that the client would darken the preparation firm's doorway again. I tell my staff all the time that no return or accounting mess is any more problematic than the paper you have in your hand at the moment. 160 information returns? No, one information return at a time until you reach the end - in this case 160. It is an error that should not have happened. The fact that it got to court is irrelevant in my opinion. The problem was at the prep level. Yes the taxpayer is culpable due to his/her lack of review. But that should not excuse the preparer. At a minimum, there should be shared liability.

[Pacun]

Jainen and Rfassett...

Tax payer could sue the preparer on a small claims court and they should win, correct? They should be able to recover the penalty money from the CPA.

[GeneInAlabama]

SMALL CLAIMS COURT??? What is the penalty for several million dollars of unreported income? :scratch_head:

[jainen]

>>Obviously the preparation firm needs to re-think their review process.<<

That wasn't obvious to the Court, which observed, "It may be (and petitioners seem to expect the Court to assume) that the omission was the result of the C.P.A.'s oversight of one Form 1099 amid 160 such forms, but no actual evidence supports that characterization."

In other words, they tried to slip it through to save a half million dollars, but they got caught.

[Don in Upstate NY]

I would question the "Heartwarming Story" caption. Why should we feel any elation when the IRS prevails on a penalty against a client for something that is (apparently) the preparer's fault? As pointed out above, the client may well persue a civil course of action against the preparer to recover the penalty assessment.

What percentage of your clients actually review their returns? Not just "why is my refund smaller than last year?" As high as 10%?

[Pacun]

>>Obviously the preparation firm needs to re-think their review process.<<

In other words, they tried to slip it through to save a half million dollars, but they got caught.

I tell my people that if they hide a 1099-misc from, the IRS has a copy and that's a red flag that is 100% enforced. I think we all should pay the penalty when it is our fault or have insurance for it.

I would like to point out that, when tax payers go to court, they will claim that they gave the 1099-misc to the CPA even when they left it at home and never mentioned it to the CPA.

[ILLMAS]

Blame the accountant, anyone ever heard that phrase before? LOL

[jainen]

>>Blame the accountant<<

The IRS is pretty deep into the accountant point of view, so they're not very sympathetic to the argument.

Remember, this circumstance went to TRIAL in a federal court. The only issue was whether to blame the accountant. Not only did the taxpayer's evidence fail to convince the judge he wasn't at fault, he had NO EVIDENCE whatsoever that the accountant even made a mistake. According to the judge, "petitioners seem to expect the Court to assume" it.

[Don in Upstate NY]

Remember, this circumstance went to TRIAL in a federal court. The only issue was whether to blame the accountant. Not only did the taxpayer's evidence fail to convince the judge he wasn't at fault, he had NO EVIDENCE whatsoever that the accountant even made a mistake. According to the judge, "petitioners seem to expect the Court to assume" it.

Not so. The issue was not whether to blame the accountant, it was whether to assess a penalty against the taxpayer. It was clear that the accountant (VTS), perhaps among others, made a mistake. From the stipulated facts in the ruling [emphasis added] ...

Petitioners provided to VTS all 160-plus information returns, including the Deutsche Bank Form 1099-MISC reporting $3.4 million from the termination of the swap and Form 1099-INT reporting $60,291.69 of interest income. VTS duly scanned the Form 1099-MISC into its records for use in preparing the return.

[jainen]

>>the stipulated facts in the ruling [emphasis added] <<

Added emphasis notwithstanding, you are assuming too much. The Court goes on to say, "for reasons the record does not show,^[3] the return that VTS prepared did not include the $3.4 million." The footnote spells it out even more clearly. "In their briefs petitioners seem to imply that the omission was the result of mistake or oversight by the C.P.A. who prepared the return. However, the stipulation does not state the reason for the omission, and because petitioners chose to submit the case under Rule 122, they did not call the C.P.A. as a witness. Thus, we do not know why the $3.4 million was omitted."

That judge is no dummy. He saw that the taxpayers' lawyer took pains to avoid actually saying the CPA screwed up and didn't let the CPA tell his obviously relevant side of the story. And that WAS the issue. The taxpayers' position was that the penalty should be abated for reasonable cause in that they had relied on professional advice. But over and over again the judge says things like, "preparer's unexplained omission." He didn't believe them, and neither do I.

[Jack from Ohio]

Agree with Jainen. I have witnessed it too many times in person. It becomes selective memory till the "rubber meets the road" and the evidence shows otherwise.

[Terry D EA]

I agree with Jack. I have just dealt with a client who was asked by the IRS for documentation for the education credits claimed on his 2009 tax return. The client doesn't remember the expense and had further memory loss when I told him if he could not substantiate the expense he would have to pay back some of his refund plus interest and penalties. Naturally, he is questioning where I got the information from. You guess where. All he needs is the 1098-T form or receipt from the college. His wife lists all their expenses on a piece of paper when they come in. I follow the ususal protocol with substantiation and proof if asked.

As accountants and preparers we certainly are not infalible. But too many times too often we are blamed for our client's lack of knowledge or failure to review thier returns. I know the IRS will stand strong on the fact that the tax payer is utilmately responsible for every line on the tax return. My clients are advised of this and every line is reviewed with them when their return is complete. I am with Jainen I don't believe the clients in that case either.

[TAXBILLY]

I do a lot of documentation because of the clients "lack of memory" as to where they got the info they gave me.

taxbilly

[Kimberly K]

Years ago while working for Block, I noticed my boss was putting Peace of Minds through without thought. She decided to never question the preparer or the client, she would believe the client,just to get it put through because she knew block would pay it. But then she would try to ruin the credibility of the preparer by chastising the preparer in front of her peers for the serious mistake that the preparer made.

One day it was slow in the office but my boss had her hands full with something. So when a client called and asked to speak to the manager, my boss told me to pretend like I was her. The client received a letter stating that the client owed over $2000 for last years return. I asked her to bring the letter in and also bring in last years return. Knowing that my boss automatically blamed my co-workers for any letter that came in, I decided to do things a little differently, once the client brought in everything. I asked her if she could leave it with me, because I was swamped. She agreed.

All of the w-2s, interest, divendends ect were in place, still neatly stapled by one of my co-workers. But what was missing was 1099c's for credit cards that the client forgot about. My boss was not happy with me, all she saw was an angry client that probably will not come back next year. I seriously did not care, this was when my loyalties were solid and saving the company $2000 and my coworkers credibility was more important.

The client returned, but of course not to me and still to this day she will not look at me when we bump into one another in our small town.