This question kind of got hung up in the EITC thread, so I will pose again. MLINDER stated that an auditor fined a preparer in her firm for "lack of backup" in doing Sche C returns. Auditor did not provide info on what "proper backup" he found acceptable. (I think this was in conjunction with EITC returns in her case, so I assume he was looking for income verification.) I was asking for others' standard practice in doing Sche C returns in general. Do you ask for bank accts? Any other documentation besides TP's statements?
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It depends.
If I have kept monthly financial records, there's no problem, since I've reconciled bank statements.
If the client is someone I trust, and after many years you get a feel for whom you can trust, no further inquiries needed.
However: A brand new client would have to go the extra mile before I would merely accept his figures written down on a piece of paper. Note however that IRS says, or used to say (?) that me may rely on such.ChEAr$,
Harlan Lunsford, EA n LA -
I don't either unless the hairs on the back of my neck raise as I am reviewing their documents. If I have a question I ask it via email and ask for an explanation to be returned via email. This way I have documentation from the client that explains the issue.Believe nothing you have not personally researched and verified.Comment
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To quote an NCPE seminar instructor, "Depends"!
Depends on the client and on what I need for substantiation.
I do a lot of Schedule F's.
1. I don't want to see the feed, fertilizer, vet, etc. bills.
2. I do want to see the livestock sales settlement sheets. I need to separate calf sales from cows and bulls.
3. I do want to see the livestock purchase statements. I need the detail for depreciation.
4. I want to see the invoices for the assets purchased that I am putting on the depreciation schedule.
I do a lot of Schedule C's.
1. I don't want to see the COGS, utility, telephone, advertising, etc. bills.
2. I do want to see the invoices for the assets purchased that I am putting on the deprciation schedule.
In all cases I want clarification and something from my client saying that they have the necessary substantiation for meals and entertainment. That is usually covered in my questionnaire.
In all cases, I want my mileage sheet completed and signed. This gives me odometer readings, mileage totals, and business use. And the statement that records are available to substantiate these. I do not look at the logs. "What log?" That is the purpose for the signed statement.
In all cases, I want something showing the charitable contributions: Receipts, checks, church statements, etc.
I also require my clients to complete a questionnaire with CMA due dilligence questions. I go over this with my client and annotate various items in red ink, indicating that I reviewed with my client. If the client doesn't complete one, I do so during the interview.Jiggers, EAComment
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Good answer, and I like all those things. I do a lot of these items, but am going to expand my request for Sche C info this year. 1099 question is now on Sche C. Do you ask for that info? In cases where you do not do the 1099's, for instance. I have one who has large 1099MISC deduction for "labor" but insists no one (except 1 or 2) is over $600. And it is not unreasonable in this particular business. It's not like I don't trust him....... but.Comment
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My questionnaire has that question about 1099's. It also asks the question "do you understand the requirement for reporting payments as wages versus payments as "Contract Labor"?"Originally posted by Burke View PostJiggers, EAComment
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See the IRS's EITC Tax Preparer Toolkit, especially the Schedule C and Record Reconstruction] training module.Comment
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