Update school warning

[tpert]

Actually, I have answered "No" on a number of returns over the years for a variety of reasons when I know the client is pulling the numbers off my ceiling. I have never had a client get audited over it.

However, the point is if they do get audited and the mileage is denied or reduced, I believe I am off the hook because I disclosed on their return the fact that there were no written records to support the mileage claimed.

Thank you for clarifying. I agree. It is better to disclose in that situation.

[tpert]

BTW, just a side note. Part IV with the written mileage log questions did not appear on the Schedule C until 1993, which is 15 years ago, not 30.

I will tell him when I see him later today. Probably a faulty memory.

[tpert]

I will tell him when I see him later today. Probably a faulty memory.

He says to look at forms 4562 (Part V) which was required to be completed for Schedule C Auto Expenses before they added that to Schedule C in 1993 and at Form 2106 which had the questions for employees. He does not remember a year when those questions were not on those forms.

[Snaggletooth]

Due Diligence

IRS auditor: "Then you lied at the time you filed the return checking the written records box?"

IRS auditor: "You lied. Mileage denied."

We haven't lied if we force the re-construction of a log concurrent with the filing of the return. For those who come to me without a log, I plan to offer extra appointment time (for a $fee) to sit down and help construct such a log. I can then answer the question "Yes" without lying.

If we wait until an audit notice to construct such a mileage log, then Bees' auditor is correct: We have lied.

[JG EA]

If they have none I agree about reconstructing (as that is what I do now). But I do not agree that:

We have to have them sign anything.

We have to see their reconstructed logs instead of their written number on a summary sheet.

I will ask the questions as Travis outlined and mark my answer. I am not their policeman/conscience/moral compass. They provide me with the information and I put it on the tax return. I am not careless - I am very careful to ask all I possibly can without seeming like I am not on their side. I do try to be diligent, but not an IRS agent. And only in rare cases do I make a client sign to the truthfulness of what they have told me. I didn't like it when called a liar and I am very careful not to call anyone a liar. (Not you Snag, this in more in reply to the post above yours.)

One of the things I have been doing for several years - is sending problem clients auto/travel worksheet to fill in. Since you people have sufficiently scared me yet again, if they don't fill this out I will make sure they do so before I can file their taxes.

[travis bickle]

I think that we may be worrying ourselves needlessly.

We have to see their reconstructed logs instead of their written number on a summary sheet.

I will ask the questions as Travis outlined and mark my answer. I am not their policeman/conscience/moral compass.

Please revisit my earlier post in this thread on this topic [sorry, I cannot cut and paste two or three different postings together into one l-o-n-g post, as some of you can do].

In my earlier post, I gave the IRS website scenario concerning "Charitable Contributions" [and my eariler post does have the url so that you can check it yourself].

In essence, and paraphrasing it, that scenario says the following:
"A client visits a preparer. The client brings a tax organizer sheet stating $X of charitable contributions. Is the preparer required to examine any further documents in order to substantiate the amount of charitable contributions?" The IRS answer is NO.

To me, the above situation is analogous to clients who bring in mileage figures, meals and entertainment figures, etc, almost ad infinitum.

IF the IRS allows us to "trust" clients who themselves have prepared a written document [i.e., a tax organizer sheet] on a specific issue, then why cannot we trust a "written-and-client-prepared-tax-organizer-sheet" on other issues??

We DO have the obligation to explain to clients the differences between personal, business and commuting miles; we do have to explain to clients excess charitable contibutions limitations; we do have to outline what documents are needed when property is donated; and we do need to inform the clients that if the IRS believes an item is not properly substantiated then the client may lose that credit and also face possible fines and penalties.

BUT that is all. We are NOT required to examine all their log sheets, etc.

I put a statement with the return indicating that, unless otherwise noted, I have prepared the client's return using figures provided by the client, without auditing said figures.

I understand that none of us wants a $1,000 fine levied on us, but I still think that some folks here are investing in overkill.

Not trying to offend anyone, just trying to give food for thought.

[Uncle Sam]

Update school warning

I have to wonder just where the brains are at the IRS when it comes to compliance issues.

They throw all sorts of punitive sanctions at us - like penalties, fines, suspension, for any attempt to understate the taxpayer's taxable income and income tax.

So, we as diligent preparers, fearful of anything negative to our professional reputation attempt to fully comply (with some exceptions - there will always be a few wiseguys that'll spoil it).

Yet - when the IRS coonducts its audits under normal circumstances - they complain that they're not productive - and that's why they need to do more intensive type audits.

Before the National Research program (and its predecessor TCMP) came out a couple of years ago - I wondered why the IRS complains about non-productivity of standard type audits - don't they realize they're setting the standard?

[Black Bart]

Same here.

Actually, I have answered "No" on a number of returns over the years for a variety of reasons when I know the client is pulling the numbers off my ceiling. I have never had a client get audited over it.

I've done the same for many, many returns and I've never been audited for it. One caveat though; even if I know they're estimating, I won't deduct unless I'm certain they travel and I think their figure is reasonable for the circumstances.

However, the point is if they do get audited and the mileage is denied or reduced, I believe I am off the hook because I disclosed on their return the fact that there were no written records to support the mileage claimed.

When you say you disclosed, I assume you mean you checked the "NO" box (rather than attaching a disclosure form). If you feel that constitutes disclosure, then I'm reassured by that (but I won't quote you).

The only fly in the soup then would be if IRS's new policy means they will check lots of returns simply because that "NO" box is checked, which, in my experience, they have not done in the past and which (a moment of silent prayer, please) hopefully they will not begin now.

[Black Bart]

I agree.

I have to wonder just where the brains are at the IRS when it comes to compliance issues. They throw all sorts of punitive sanctions at us - like penalties, fines, suspension, for any attempt to understate the taxpayer's taxable income and income tax. So, we as diligent preparers, fearful of anything negative to our professional reputation attempt to fully comply (with some exceptions - there will always be a few wiseguys that'll spoil it). Yet - when the IRS coonducts its audits under normal circumstances - they complain that they're not productive - and that's why they need to do more intensive type audits. Before the National Research program (and its predecessor TCMP) came out a couple of years ago - I wondered why the IRS complains about non-productivity of standard type audits - don't they realize they're setting the standard?

Found an interesting statement; a little dated, but relevant. Here's part of it:

STATEMENT OF J. RUSSELL GEORGE, TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION (TIGTA) before the U.S. SENATE COMMITTEE ON...TAXATION AND IRS OVERSIGHT. "A Closer Look at the Size and Sources of the Tax Gap" -- July 26, 2006.

"...The difference in compliance rates between individual wage-earning taxpayers who report 99% of their wages...and non-farm self-employed individuals who report only about 68% of their income...is striking. TIGTA believes...to reduce the tax gap...tax simplification and...increased...third-party reporting...(would be) significant factors...

In 2005, examinations of high-income taxpayers were...highest...since 1996...IRS considers high-income taxpayers...those who file Form 1040 with Total Positive Income of $100,000...and...business taxpayers who file...Total Gross Receipts of $100,000 on Schedule C or F. IRS' increased examination rate of high-income taxpayers...(is) due largely to an increase in correspondence examinations which limit the tax issues the IRS can address in comparison with face-to-face examinations..."

(listed statistics for high-income taxpayers -- years 2002 through 2005):
Schedule C examination rate increased from 1.53% to 3.52% (54% by correspondence)
Face-to-face examinations increased by 25%
Correspondence examinations increased by 170%

"In FY 2004, the IRS assessed $2.1 billion in additional taxes on high-income taxpayers...$1.4 billion (66%) of that amount...was assessed to taxpayers who did not respond...to the IRS...correspondence examination*. TIGTA estimates...86% of the $1.4 billion has been either abated or not collected after an average of 608 days -- nearly two years after the assessment was made. Our conclusion is...the Examination...programs...may not...affect...compliance, given the substantial assessments that have been abated or not collected."

So, I guess they were tellin' IRS to do more face-to-face work and require more 1099s. They did not mention practitioners.

One last item -- about people in prison -- would be funny if it wasn't costing us: He said while prisoner returns are only 4/10% of all refund returns, they account for 15% of the total fraudulent returns. Here's his statistics summary for 2002 through 2004:

Prisoner fraud grew from 4300 to 18,000 returns. IRS identified 455,000 refund returns as being filed by prisoners, but screened only 36,000. Resources were not available to screen the remaining 419,000 and those claimed $318 million of Earned Income Tax Credit. 18,000 of unscreened returns for 2003 filed as Single or Head of Household claiming $19 million EITC**. Since they were incarcerated for the entire year, they would not have had eligible income or a qualified child.

*And the lesson here seems that if you just ignore the problem...it will go away.

**Seems like a no-brainer -- surely it wouldn't have cost IRS $19 million to check them only for EITC claims -- after all, they couldn't lose the argument.

[Jiggers]

Compliance

I just wish that the IRS would spend more time auditing those "self-prepared" returns using those cheap tax software that is readily available.

A lot of those self-prepared returns are actually prepared by non-enrolled preparers who won't sign the return and probably isn't reporting the income received.

I pick up a few returns each year from taxpayers who get a CP2000 or audited and when I question who prepared the return, I usually hit a stone wall as it is usually a relative. When I point out the errors causing the notice or audit, then they understand.

I think a big chunk of the national debt could be reduced by the IRS doing this.

[MLINDER42]

Self-Prepared Returns

I see several of these returns a year listed as self prepared but done by a preparer.I am in the DC area and it is very prevalent among certain branches of the federal government.Most of them I refuse to e-file because they want bank products and the refunds are inflated.They always have employee business expenses.