OIC Questions

[erchess]

I told new clients tonight to do an installment agreement and said that the outfit that was going to charge them 3K (they showed me the contract) was not going to be able to do any better for them despite apparent verbal assurances that if they would write out for the company their income and their regular bills they would end up with no debt to the IRS. He owes a total of 7+K for his 05 and 06 returns when they were not married. The problem both years was that his return claimed employee business expenses that he says he never had and that the preparer never asked him about and that he never looked at his returns until news of the audit came. He says three colleagues at work were audited at the same time for the same years and they went to the same preparer he did. Anyway he has received and allowed to expire statutory notices of deficiency during the period he spent talking to people on the phone. Naturally I don't have a firm grasp of the substance of the phone conversations but that seems ok since he clearly owes the additional tpi. They live in a very nice apartment, they own his truck and motorcycle and possibly a car of hers. The motorcycle could be sold quickly for 10K because it is a ten year old custom Harley that runs well. He doesn't want to sell it because the market is in his view temporarily depressed by the economy and because in the past 30 year old custom Harleys that still run well have sold for astronomical sums. They make between them about 40K a year. They have a well stocked refrigerator. They say the rent, truck payment, and other bills eat up everything but I was able to get them to agree to pay the IRS 200 tomorrow and 150 a month. I told them that before the IRS agreed that they could not pay their debts they were going to have to find a cheaper apartment, sell the motorcycle, and get used to spending on food and clothes what they would if they each got paid minimum wage.

1. Was I wrong to tell them that I knew enough to know they were not going to get an OIC that would make them happy? As I indicated selling the Harley is not going to happen at least not right now but according to them if it did happen that would be IRS problem solved right away.

2. Assuming for the moment that the preparer in question did to these four workers what my client says he did can the workers gain anything for themselves and/or get the rat out of the business by telling the IRS about him and if so what is my role?

[BHoffman]

1. Installment agreement sounds like a good idea. I agree with you that they probably wouldn't receive an OIC.

2. "He says three colleagues at work were audited at the same time for the same years and they went to the same preparer he did." Sounds like the IRS is already onto the bogus tax preparer.

Also, the taxpayer signed the return stating "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." If the client recognized the false reporting after the audit began, then why would he not have noticed them before he filed the return? I wonder if the IRS is going to reward taxpayers for turning in a bad preparer when they were (sort of) complicit.

[David1980]

Also, the taxpayer signed the return stating "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." If the client recognized the false reporting after the audit began, then why would he not have noticed them before he filed the return? I wonder if the IRS is going to reward taxpayers for turning in a bad preparer when they were (sort of) complicit.

Heck, the taxpayer probably went to that preparer specifically because the refunds were bigger. Perhaps they heard about the preparer from those coworkers. If they didn't ask questions or didn't review the return they deserve the penalties - they had reason to be suspicious.

I can't feel too bad for taxpayers in that situation. Where they shop around to find a preparer willing to give them bogus deductions. It's common, for example label yourself a "fire fighter specialist" and give everyone per diem for their shift and no doubt half the fire fighters will go to you for their taxes. Then when audited simply claim they didn't know. Look how big Kapp got before that went bust.

[erchess]

Further Info

1. TP's brother is half owner of firm for which TP works. Tax Professional does the books and taxes for the firm and personal returns of the two owners and their wives. I didn't ask but the man didn't mention the firm or either owner being audited. The workers in question went to the Tax Pro because owners recommended but this was a real recommendation without pressure and there have been no repercussions from the fact that all three went elsewhere last season.

2. TP is satisfied that his 07 return was done correctly because the girl at the storefront firm he went to asked for his receipts, asked questions about each, made notes, and told him certain ones were not deductible. He still seems not to have checked to see that she added them correctly and that he knows what line on what form each was entered. He has only a high school education and he may know that he can no more do what I just said than I can perform brain surgery. He was going to attend a major state university on a football scholarship but he had a back injury and that ended all thought of College Football and therefore College. Despite his satisfaction with the job done at the other firm, he told me tonight that he is wants me to do his 08 return and he feels that he will be able to persuade his friends to go along. I looked him in the eye and I told him straight a message he had strongly suspected but had hoped was not true.

3. I am quite sure that he and his wife are unaware of the statement to which one agrees when signing a return. I will put the matter in words a kindergarten child would understand before letting them sign if they do in fact have me do their 08 return.

[BHoffman]

That doggone fine print.