Do you think the IRS will catch this?

[Davc]

It is not.
Client did not engage preparer for any purpose reference the 2009
return.

Now if client had sought a review of the 2009 return and preparer agreed to do it for compensation, 230 does apply.

You can stick to your theory, but I strongly recommend that others reading this thread follow the actual language in Circ 230.

[Roberts]

You can stick to your theory, but I strongly recommend that others reading this thread follow the actual language in Circ 230.

If you have a new client come in today, do you force them to sign a waiver removing all liability for yourself for all previous returns they may have filed that you haven't reviewed?

[Nashville]

Reality Check

follow the actual language in Circ 230.

If you've been following the thread, the "actual language" referred to is a rather all-encompassing verbage which places the preparer in a Holy Crusade to collect all revenue from all sources at all times.

We can follow any inference to its logistical ridiculous end by saying "We are the World..."
and gather 'round and sing Kum Bay Yah. I hope Circ 230 does not expect me to divulge suspected unreported income, IRC abuses, etc. that I discover along the way from exposure to parties who haven't engaged me.

Even bankruptcy courts make arrangements to pay accountants for historical and research-type activities of prior years. If no one has agreed to pay us for preparing a 2009 return, then why should we go there?

[Gary2]

If you have a new client come in today, do you force them to sign a waiver removing all liability for yourself for all previous returns they may have filed that you haven't reviewed?

The rule doesn't make the preparer in any way responsible for the numbers on those prior year returns. It just creates an ethical responsibility to tell the client about the implications. Consider it an opportunity, not a burden.

[Davc]

The rule doesn't make the preparer in any way responsible for the numbers on those prior year returns. It just creates an ethical responsibility to tell the client about the implications.

Correct. Interesting how we have those who insist it means less than it says and others who claim it's much more draconian than what's actually stated and use that as an axcuse to justify non-compliance.

[Roberts]

Correct. Interesting how we have those who insist it means less than it says and others who claim it's much more draconian than what's actually stated and use that as an axcuse to justify non-compliance.

I didn't say anything about the numbers on the previous returns. There may have been positions taken on those returns that you find wrong. Even if you weren't paid to review those returns (like the OP said of this return) don't you have a responsibility to inform them of the potential consequences for their actions on those returns? By your own position, you have a legal requirement to inform them of the consequences, no?

[JohnH]

Yes, a very interesting discussion. Seems like the main lesson to be learned is not to accept assignments to grade other people's papers. At least, not for free.

If they ask you to "look over" their return, the answer should be you'll have to charge them as much to look it over as you would charge to prepare the darn thing. At least that eliminates the "freebie" clutter and you can get on with business. (BTW, that's usually my answer anyhow).

And if you find yourself faced with an ethical dilemma regarding whether or not to warn them about a current or prior year, you've been compensated for your time, effort, and aggravation.

[bgiez]

Boy, I started out asking what I thought was

a simple question - would the IRS detect the double dipping of the education expense on that TY2009 mailed in return and it turns into a discussion of circular 230 and a preparer's ethical or legal responsiblity. I'm not complaining, however; I find it interesting.

Every ethics session I have attended (2 hours minimum per year) said, basically, if I notice an error on a previously prepared return, I have the responsibility to notify the client of the error and the ramifications. If it was a return I had prepared, I would prepare an amendment to correct the error (to protect myself). It would be up to the client to file the amendent.

I'd like to ask another question - How can you prepare a return for a new client without looking at the prior year(s) - for loss carry forwards, refunds applied to the next year, suspended losses, charitable carry forwards (yes, I actually have 2 clients who can't take all of their charitable contributions), how much they paid for tax preparation, how many years an AOC or Hope credit has been taken, etc.? I'm not looking for errors, just for information. I am not looking at source documents, just at the prepared return. If I find an error while looking for information in a return prepared by someone else, I do notify the client and I do document in my client notes. That is my procedure.

If asked to "review" a previously prepared return, whether the current year or a previous year, I do explain, as others have suggested, that my fee would be the same as if I had prepared the return.

§ 10.21 Knowledge of client’s omission.
A practitioner who, having been retained by a client
with respect to a matter administered by the Internal
Revenue Service, knows that the client has not complied
with the revenue laws of the United States or
has made an error in or omission from any return,
document, affidavit, or other paper which the client
submitted or executed under the revenue laws of the
United States, must advise the client promptly of
the fact of such noncompliance, error, or omission.
The practitioner must advise the client of the consequences
as provided under the Code and regulations
of such noncompliance, error, or omission.

[JohnH]

Just think of all the fascinating twists & turns the conversation would have taken if you'd asked if the IRS might notice that the guy claimed his dog as a dependent last year...

[Davc]

I didn't say anything about the numbers on the previous returns. There may have been positions taken on those returns that you find wrong. Even if you weren't paid to review those returns (like the OP said of this return) don't you have a responsibility to inform them of the potential consequences for their actions on those returns? By your own position, you have a legal requirement to inform them of the consequences, no?

From your previous post:"If you have a new client come in today, do you force them to sign a waiver removing all liability for yourself for all previous returns they may have filed that you haven't reviewed?"

You're implying I took a position that we have a liability of some sort regarding returns we haven't even seen.

[Davc]

I'd like to ask another question - How can you prepare a return for a new client without looking at the prior year(s) - for loss carry forwards, refunds applied to the next year, suspended losses, charitable carry forwards (yes, I actually have 2 clients who can't take all of their charitable contributions), how much they paid for tax preparation, how many years an AOC or Hope credit has been taken, etc.?

You can't.

[JohnH]

Dave is correct. You can't prepare the current year's return without looking at the prior years.

But you can look at the current year's info and decide you don't want them as a client.

Or you can look at the prior year's return(s) and decide you don't want them as a client regardless of the current year info.

In either of those two cases, I find it difficult to see how a client relationship was ever established unless you charged for the "looking at" phase. (That is, unless you have a strong desire to become an agent of the government)

[bgiez]

You can't.

And that's exactly my point. By taking a new client, you put yourself in the position of possibly becoming aware of issues where circular 230 comes into play in regard to returns you did not prepare, and that the client did not engage you to "review." My interpretation the section of circular 230 that I included in my previous post is that if we see something, we are obligated to make the client aware of the issue and its consequences.