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Lawyerese is Disturbing

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    Lawyerese is Disturbing

    The Internal Revenue Code requires all income to be reported and taxes paid on that income as determined by law. I understand that income includes all tips, gifts and gratuities in addition to wages I receive as a result of my employment. I am reporting the following information for the accurate preparation of my 2009 income tax returns:

    __ I did not receive any tips, gifts or gratuities in 2009 related to my employment.

    __ All tips, gifts and gratuities were reported to my employer and have been included on my W-2, Wage & Income Statement.

    __ I had tips, gifts and gratuities in the amount of $______________ to be reported as income.

    Signed: ____________________________ Date: _________________


    The above is a statement one of our board members recommended as a solution to the problem of clients not claiming all their income. My comments are not to be construed as a criticism of the board member, who has consistently given good advice on this forum. And this advice, of itself, is not "wrong" and I am not advocating that others not listen to it.

    Resorting to this kind of CYA action, however, is disturbing. We are not supposed to be auditors and we are not lawyers. This almost acknowledges that the responsibility of policing unreported income is ours and we are just bailing out of our liability by having the client sign this statement.

    I know it is the delusionary dream of IRS commissioners to have tax preparers working for them instead of working for our clients. And the threats of assessing penalties of course are causing people in our profession to scurry hither and yon drafting various documents belying responsibility that should never be ours to begin with.

    IRS already requires 8% of gross receipts to be allocated for waitresses and others in the "tipping" businesses, and then dumps the methodology for this upon the various employers, who are left without guidance and end up allocating in whatever fashion they deem appropriate. I am often asked by waiters/waitresses how this happens and they complain as often as not that they never receive as much as their allocation. In particular, they complain about their employer's allocation methods, and that the employer picks and chooses to whom they allocate disproportionate shares of tips. In many cases, if you subtract these allocated tips, some of these people are working at less than minimum wage.

    I can't justify shoving a document under the nose of these people for them to sign, instead of getting on with the business of filling out their tax return. And anyone who thinks a stripper is going to claim her income is not living in the real world. I checked into a hotel behind one who appeared plump in a pullover coat -- and she kept pulling dollar bills out of her coat and garments and pulling and pulling and when she was finished she was really skinny.

    I will refrain from alienating my clients by asking them to sign front-end documents unless there is a real threat, and for positions that are simply not sustainable to the extent that I have to beat them up with a CYA statement, I'll just tell them I won't take these positions and be done with it. There are easier ways to simplify this business, folks.

    #2
    I guess if I felt the need to have a client sign such a document because I suspected the client of not reporting all his/her income, I would simply refuse the engagement. We are not required to have our clients swear under oath that they are telling us the truth. At the same time, we are obligated to ask questions and dig into it when things do not smell right. Thus, I can understand why someone would have a client sign the statement.

    I have a mild version of that in my client instruction letter. It reads:

    “I prepared your returns based on the information you provided. Please review the returns carefully to ensure that there are no omissions or misstatements of material facts.”

    They do not have to sign anything to acknowledge the above statement. It is simply a part of the instruction letter I give to each client that tells them to sign the e-file authorization statement, and how to pay any balance due. I feel that with such a statement given to each client before they sign the e-file authorization, they are put on notice that any omissions or misstatements are their fault, not mine.

    Comment


      #3
      My letter says the same thing. But to take it a step further, directly on the 8879 it states:

      Under penalties of perjury, I declare that I have examined a copy of my electronic individual income tax return and accompanying schedules and statements
      for the tax year ending December 31, 2009, and to the best of my knowledge and belief, it is true, correct, and complete.


      If you're paper filing, in the signature area it states:

      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. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.


      I think that as long as we have asked the pertinent questions, that should cover us.
      Sandy >^..^<

      Comment


        #4
        Edsel,

        I don't know if you are a Circ. 230 practitioner or not, but you better believe theIRS has stepped up efforts to assess penalties against preparers for lack of due diligence. Documentation like this can mean the difference between a $1,000 fine or showing that you made the effort to elicit all reportable income from a client.

        Like it or not, tax preparation is a different environment than we had 5 years ago and CYA is more important that ever. The proposed national licensing of preparers is all about sanctions against perceived "bad" preparers, as defined by the IRS standards not us, and they WILL tighten the screws even more.
        "A man that holds a cat by the tail learns something he can learn no other way." - Mark Twain

        Comment


          #5
          How do we prove...

          How do we prove we have asked the pertinent questions? Especially, once a client is blaming us? I can see some preparers installing nanny cams!

          Comment


            #6
            If they do not want a state return done that you have explained to them needs to be done, then have them sign a statement to that effect and you keep one copy and their copy of the return contains a copy of the statement.

            Comment


              #7
              Ok Lion, maybe a little simplistic, but what about the signing jurat? Isn't that supposed to count for something? They have to take some responsibility, don't they?
              Sandy >^..^<

              Comment


                #8
                Licensing

                Originally posted by taxmandan View Post
                I don't know if you are a Circ. 230 practitioner or not, but you better believe theIRS has stepped up efforts to assess penalties against preparers for lack of due diligence. Documentation like this can mean the difference between a $1,000 fine or showing that you made the effort to elicit all reportable income from a client.

                Like it or not, tax preparation is a different environment than we had 5 years ago and CYA is more important that ever. The proposed national licensing of preparers is all about sanctions against perceived "bad" preparers, as defined by the IRS standards not us, and they WILL tighten the screws even more.
                Taxmandan, your differences in operating your practice are noted and respected. I am supposed to be following Circ. 230 like all of us are. All of the statements you make above are true. I also believe my treatment of clientele is desirable.

                As much as national licensing is needed to weed out the bad preparers, many of us will live to see the day it will become a Trojan Horse. Most of us are in favor of it now because these incompetent and unscrupulous preparers are hurting our practice. Ultimately it will become a tool for IRS to place more of their work on us, as well as administrative requirements which will drive us bonkers.

                Comment


                  #9
                  Originally posted by Lion View Post
                  How do we prove we have asked the pertinent questions? Especially, once a client is blaming us? I can see some preparers installing nanny cams!
                  Among the documents I give each of my clients is a detailed checklist that contains everything they could possibly have in order to complete a return. They return the checklist with their checkmarks in their handwriting along with worksheets in their handwriting which I keep with my copy of their file.
                  Then I rely on the disclaimer on the tax return and on the 8879 which they also have to sign.
                  If anything is missing that I think should be there I ask them for more detail
                  Believe nothing you have not personally researched and verified.

                  Comment


                    #10
                    Originally posted by Edsel View Post
                    national licensing is needed to weed out the bad preparers
                    In my area there are so-called preparers who prepare returns for a fee and then don't sign the return as preparer, entering "self-prepared" instead. These won't be weeded out by registration.

                    Comment

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