Minnesota Preparers

[JON]

This is the first time ever I have had this. Client receives a notice from the state that adds about $2600 to dividend income for a 2006 income tax return. The explanation does not give any details how they arrived at it, and it changes the return by about $300 in tax. Friday the client calls the state and puts us on a conference call. The state person says will you have the details of the differences on the back of the tax calculation page. We say there are no differences detailed and could he "e" or fax us that list. He says no. I ask why if we have not received a federal notice-why a state? He says now we are doing it. I ask him how many 1099-DIVs does he show, and he says 15 and I respond we recorded 17. He then counts on the telephone and does come up with 17. He mentions one 1099 and says it is listed at $3,225. We say that does not match any of ours, but we are not off by that exact amount. Again we ask for the his information and he says no. He explains we can "appeal" by responding to the letter within 60 days. Meaning send all 1099s and hope that will be enough to show the differences. The appeals will review and IF they accept your response the charge will go away, if not you will be notified of that and have 30 days to pay. For $300 and this time of year I do not want to spend time and client's money on the response, but the client in this case has the time and ability to respond. The STATE has never before initiated reviews on this subject.

Yesterday the tax preparer accross the hall comes in with NOTICE from the STATE for 2006 and missing dividends for one of his clients. The net change in tax about $150.

Here is the point-the state is taking over for the federal on CP 2000 audits(for dividends)??? Yes in MN -The state does not get any 1099-DIVs sent directly to them so somehow they are getting keyed somewhere else and the state is following up. I do not mind inquiring on any of my returns, but the method they are using is not correct, plus if the federal cannot handle then let the states do the review. You can tell the state had to get 2006s out before April 15, 2010, so they were forced to get help, but they have to find a better way of doing it. I am sure that both of the notices I saw were wrong from the state. Think about it an adjustment by the state that is not made by 4/15/2010 will not have to be corrected in time to change anything on the federal if after 4/15/10. Both of these we may not hear back by 4/15/10.

Because I know where I was when both Kennedys were shot, I also have a couple of friends at the Commissioner of Revenue's Department and will enjoy discussing this with them Monday, but I really do not want to spend much time on this. I do think there is a CHANGE happenning in how returns are being reviewed, and not a good one.

[JON]

Minnesota's response

I talked to the the friend at the State and explained my problem with the 2006 notice received that did not send the details of the differences. All he said was "oh no" - the first year they did these notices was for 2005( done in September of 2009) and they did not attached details so that was supposed to be corrected on the 2006 notices and was not.

More interesting is why they have decided to pursue this-the State believes the federal "passes" on small amounts and should not. Minnesota thinks they should pick up the differences as a money maker. He will get the notices changed for 2007.

He said there were about 3000 sent out for 2006. The three I know of we believe are all keypunch errors. The best one is a preparer got a notice in the mail on Saturday correcting her interest income by $81,000. She is excited as she says she will pay the tax gladly as soon as they tell her where the money is being held.

[AuditorTurnedGood]

I used to audit for MN

They have a massive building full of auditors for a state of about 4M people. The Feds are much slower than the state, because they have way more info and less staff.

All of the data submitted with a tax return or under an SSN is shared b/w the Fed and the state, even if the DIV is not sent directly to the state, they're going to have it. Also, unless the original return was filed on extension, the drop dead date for a 2006 return is October 15, 2010.

If it makes you feel any better, you probably had a rookie - this is what they start them out on as new hires. Best of luck!

ATG

[Sabre]

Tax Differences

In a case such as yours I just tell the client you will pay me more in fees than the actual tax that they figure even though it is wrong. I charge $200 an Hour and will not produce a letter for less than $117.00 which is a half hour of my time and a quarter of an hour for my receptionist that I bill out at $68 dollars an hour.

I make the client understand that it was not an error I made on the return. If I messed up then the tab is on me.

[JON]

I think

the point is the State is doing something new, and doing it wrong. I trust David at the Department now that he is aware will get it right. We had others call there as there are errors in what they have. The State says it is a Federal information problem. My CPA friend who received the $81,000 increase in interest income on her State notice would have received a notice from the Federal if that difference was on the Fed info.

The State of MN will have their audit staff tripled by next year. With more to come. I have not had one yet, but from the sounds of it they are like the old comprehensive audits that the federal used to have. The audits are here are the deductions show me the proof. They did so well auditing for sales taxes that they think they will the collect more on income taxes then sales because of the volume of returns. Unless they get a bunch of no change audits there will be a lot more time spent with our state friends.

[Mike Mac]

MN audits

I've always thought that the biggest potential for MN audit folks would be in the area of Property Tax refunds rather than Income tax. At least they tightened up on the distribution of the CRP forms so it is harder just to out-and-out make up rental situations out of the blue. I always have clients argue with me when I have to add back many of the non-taxable income items on line 5 of the M1PR. Maybe their other preparers didn't bother with that step too often.