Our Tax Dollars at Work

[tilt53]

This is unreal. http://tinyurl.com/yc8j4sq

[Jiggers]

Wrong word in title

This should read "Our Tax Dollars at Waste".

[Bees Knees]

Well, that IS how many audits are picked. If you make less than what the statistics say you should make for your area, you are at risk of being audited for unreported income. How else can you afford to live in a particular area if you are not earning money under the table? Why is that unreal?

I'll bet the rest of the story is, working at a hair salon, what about un-reported tips?

[BHoffman]

Not exactly on topic but thought this was interesting

http://www.irs.ustreas.gov/pub/irs-soi/09rescontaxprep.pdf

[Jiggers]

But, still a waste.

Maybe tips, but that wasn't an issue.

What is disturbing is the statement that she had to spend several hundred dollars to have her return prepared.

[erchess]

Block Issues

Someone either on this board or in the article wondered why Block did not represent her. I believe that Block would have been happy to represent her. I do not know why she did not take advantage of that. Maybe she or her Dad thought his guy was a lot better. I also believe that Block's standard guarantee is that if you let them help you with the defense, they will pay P and I and that they offer at the time of preparation to sell you a "Peace of Mind" guarantee that will pay the additional tax up to a certain amount.

As to the question of the fee, I expect that the lady got a Refund Anticipation Loan. If I am right it would take the surprise out of the fee. If she did not get a RAL I too am surprised by the fee.

[tilt53]

I'm sure that we don't have all of the information, but here was someone who did not appear to be scamming the system at the $12,000 mark to maximize EIC. From the sound of it, she's trying to get back on her feet - living at home and paying rent to her parents. She's not being given a free ride, but a leg up.

For the parents to be targeted seems the be the epitome of arrogance on behalf of the IRS. Someone in another forum raised the question of why the Taxpayer Advocate was not involved. I think that's a good point.

[erchess]

My Question

I have to admit that I was as outraged as most readers when I first read this case. However, I have changed my view. Now I would like to know how a taxpayer who lives with her two children and her parents, who have higher income than she does and own or rent the home in which they all live can believably claim she is supporting her kids. That simply does not pass the laugh test unless they have strong evidence such as spending records or separate refrigerators or at least ownership labels on everything in the fridge. I'm not saying it's impossible for her to be supporting these kids but I am saying it's sufficiently unlikely that I understand why the IRS did everything the article says it did.

One thing I would say is that it is important for all taxpayers to know that the burden of examination falls with equal weight at all income levels. We must not let the fact that collections form lower income taxpayers will seldom equal the costs of collection deter us from seeing that every income level has the same chance of being audited.

[RLymanC]

Parents

receiving $400.00 month, mmmmmmm, the IRS did not require a schedule E. How'd they miss that one, to busy tryin to deny EIC most likely.

There was an EIC audit years ago, the taxpayers lost. Could not prove that their 8 month old child lived with them. Those were the days when Glergy, landlords, parents, and friends statements did not count. Only doctors or school records seemed to satify them, and those two were none existant. There was no documentation that would satisfy them.

[DonPriebe]

Why is support an issue?

... Now I would like to know how a taxpayer who lives with her two children and her parents, who have higher income than she does and own or rent the home in which they all live can believably claim she is supporting her kids.

Although the article wasn't too specific on the years involved, the uniform definition of a child has been in effect for the last several years.

To claim the kids as dependents, the mother need not support them. The requirement is that the kids do not provide over 50% of their own support.

To claim the kids for EIC, no support is required.

If the taxpayer was claiming HoH she was probably incorrect. But at her income level filing status is not an issue unless she was still married and should have filed MFS.

[Bees Knees]

What is disturbing is the statement that she had to spend several hundred dollars to have her return prepared.

What is disturbing to me is our profession thinks several hundred dollars is too much to charge to prepare a tax return.

[Jiggers]

Depends.......

What is disturbing to me is our profession thinks several hundred dollars is too much to charge to prepare a tax return.

Depends on the circumstances.

Just billed $1,720.00 for a large 1040 return.

However, "several hundred dollars" for probably a 1040A return seems out of line.

[Bees Knees]

However, "several hundred dollars" for probably a 1040A return seems out of line.

Well of course it is...because ALL OF US still charge that way.

It wouldn't be out of line if we ALL started charging the way other professionals charge.

We are only worth what we charge. If you charge a $100 for a 1040A, then that is what we are worth. However, given the time and energy and the cost of tax software, computers, supplies, education, liability insurance, etc... $100 to do a simple task is less than what an electrician, or a plumber, or a carpet cleaner would charge you to do a similar simple task.

We as a profession are the bottom of the barrel when it comes to fees.

[Snaggletooth]

Agree

For our level of training, expectation, liability and responsibility, we are perhaps the most underpaid and underappreciated of all professions. I remember trying desperately to convince a client NOT to put real estate in his corporation to no avail. But when his lawyer told him he shouldn't do this, [poof!] instant compliance.

This situation may have had its roots in history, when almost anyone's family member could read the 1040 instructions and fill out their own return some 35-40 years ago. Tax professionals may have been needed at that time, but the perception was that for personal 1040s and 1040As, it could easily be a DIY deal. The most help one could receive from a tax professional was deemed to be a voluminous checklist of Schedule A deductions that a DIY would typically forget. For those of you who began practice after 1986, the Schedule A could include dozens of items that are no longer deductible, and they had no 2% threshold at the time.

Since that time of almost zero overhead, the rise in professional costs has outstripped the rise in fees by several multiples. Our clientele understands very little of this, and many of them resist fee increases. Although I am opposed to RALs for my clients, HRB and others, to their credit, have been able to use RALs to justify commensurate increases in their fees.

It is the same principle of an auto repair shop. You pay $50/hr. for the services of a mechanic whom you know is making only $15/hr. However, the hourly rate is the only way the shop can absorb its overhead.

Consider what we pay for software. Minimum $1000 or close to it. Then several hundred dollars for CPE seminars, not including travel. Travel may be another several hundred dollars. Liability insurance. Then for every hour of appointment time, there is at least another hour of computer proofing/quality control/research.

So I charge some $75 for every appointment hour and document assimilation. Clients think I'm getting rich. Then after April 15th almost all the revenue is in, and what revenue we get from tax prep for the rest of the year doesn't offset the CP2000s which start coming out in July.

Anyone thinks as a profession we're making money should look at my Schedule C.

[gkaiseril]

receiving $400.00 month, mmmmmmm, the IRS did not require a schedule E. How'd they miss that one, to busy tryin to deny EIC most likely.

There was an EIC audit years ago, the taxpayers lost. Could not prove that their 8 month old child lived with them. Those were the days when Glergy, landlords, parents, and friends statements did not count. Only doctors or school records seemed to satify them, and those two were none existant. There was no documentation that would satisfy them.

Maybe the auditor/supervisor realized after the CPA reminded them about related party rental that the allocated housing expenses could be used to offset the rental income received and realized this was beating a dead horse.

Just wait until the 2009 EIC returns with 3 eligible children. Just be careful when a 15 year old male supports 3 children and does not know their names, DOB, SSN and pays only $25.00 per month for support. Jus hope none of them are older than he is.