Self employment verification

[Questionguy101]

Has anyone of you been requested by your client to certify that they have been self-employed for more 2 years? Lately, I have two clients approach me for the same request. Both of them need it because they are trying to refinance and the bank wants their tax preparer (which is me) to do the certification.

I am wondering...are we in the position to certify that they are self-employed. They came to us and told us they were in business. There was not reason for us to suspect that it was not true. So we have prepared their self-employed tax return based on the information that they provided. But it does not mean that we can actually certify that they were in business.

Having been provided with a piece of information does not mean that you can actually certify that the piece of information is correct. Does anyone agree or disagree with me?

So how would you handle the situation upon the same request by your clients?

[outwest]

You are right.

you have no way of certifying that. Check with your E&O carrier for a template to respond. My goes (in broad outline)
I prepared the Sched C profit and loss from business for federal taxes.
This was solely for federal taxes.
This is not a confirmation that the taxpayer was self employed (whatever that means)
You the lender are solely responsible for credit analysis.
This does not create privaty(sp?) with the lender.

Blah Blah Blah.

I had them call back saying this will prevent the client from getting the loan. Every one otherwise qualified went through anyway. go figure. guess it wasn't so important after all.

[ToledoEd]

I have had the request many times and usually reply on my letter head, I have prepared John Client's tax returns for X years and there has been a Schedule C on the return since 20xx. Most of the time it is simply a piece of paper the bank wants to have in the file.

[JohnH]

I personally can't verify that any of my clients who file Schedule C are self-employed. All I can verify for the lender is that the client provided information to me which I then entered on the proper tax form. Without auditiing or performing regular accounting services for a business, the tax preparer can't really verify anything else regarding an individual client.

You might want to check out the discussion on this thread.

http://www.thetaxbook.com/forums/showthread.php?t=18349&highlight=verification

[taxea]

I personally can't verify that any of my clients who file Schedule C are self-employed. All I can verify for the lender is that the client provided information to me which I then entered on the proper tax form. Without auditiing or performing regular acocunting services for a business, the tax preparer can't really verify anything else regarding an individual client.

You might want to check out the discussion on this thread.


http://www.thetaxbook.com/forums/sho...t=verification

I agree with JohnH but I don't put it in writing. I tell my client to have the person call me so I can tell him why he can't use me to verify self-employment. If anyone he should be checking with the state licensing agency.

[JohnH]

After all my bluster about mostly refusing to provide verifications, I find myself in a position that I may need to do one in an unusual situation. Would anyone care to grade my paper?

'' I am writing this letter to you on behalf of my clients, _______, at their request. For the past ___
years, I have prepared their personal tax returns and forwarded the returns in paper form to the
clients for them to file with the IRS. I prepare the returns from information provided to me by the
client, without audit or other verification.

During this time, the clients have provided me with a Schedule K-1, Form 1065 from ______ in
each year. This form reports net income and other relevant information from partnerships and
from LLC’s which have elected to be taxed as partnerships. This form K-1 also reports the
amount of Self-Employment Earnings in Box 14, which is properly reported on the personal tax
return as Self-Employment Income on Schedule E and Schedule SE. I do not prepare the Form
1065 or K-1, and my role is limited to transferring the information from the K-1 to the proper
lines on the Form 1040.

I hope this will be sufficient for your records. If you require additional information regarding the
filing of the returns for these years, you can file Form 4506-T (Request for Transcript of Tax
Return) with the IRS, which is the appropriate method for obtaining this information for quality
control and due diligence purposes. The response to a properly filed 4506-T can usually be
obtained within 24 – 48 hours. "

[FEDUKE404]

NOT our job

This issue has been discussed at length on these boards even in the recent past.

Quick summary: Most here feel it is NOT our purpose in life to "provide facts" or "substantiate information" that would not otherwise be shown on a tax return we prepared.

The banks et al are looking for a CYA person - I will not provide them that.

In situations where the tax preparer is also involved in matters related to the business in which the person works, there may be some tweaking necessary.

As for John's creation: Looks fine to me, but I still would be reluctant to take that route in the absence of any truly extenuating circumstances. FWIW: I really don't see a lot there (other than verbiage!) that could not be summarized in "I did their taxes based upon their information and copies are available."


FE

[Burke]

As for John's creation: Looks fine to me, but I still would be reluctant to take that route in the absence of any truly extenuating circumstances. FWIW: I really don't see a lot there (other than verbiage!) that could not be summarized in "I did their taxes based upon their information and copies are available." FE

Yes, but didn't it sound all very impressive? I am sure the bank would be happy even though it doesn't certify anything.

[erchess]

JohnH

I'd love to know why you feel it appropriate to do this. My inclination would be to refuse. I vaguely recall writing such letters when I worked for my first employer in this business and I did write one the first time a request came after I went out on my own. I have subsequently come to view writing such as unwise.

[FEDUKE404]

JH and verbiage

Yes, but didn't it sound all very impressive? I am sure the bank would be happy even though it doesn't certify anything.

Our good friend JohnH does indeed possess many skills.

However, I do fear (after reading his proposed letter) that he may have some "lawyer blood" mixed in.

Hopefully his family physician can suggest some suitable treatment for the malady.

FE

[ttbtaxes]

Comfort letter

I would NEVER write a "comfort letter" as they're called.

The AICPA has very specific wording which must be used as it relates to this issue and for good reason. If something goes wrong in the future, the lending institution may come knocking at your door. You better have all your t's crossed and i's dotted.

Here is an article by the AICPA regarding this issue:

http://www.journalofaccountancy.com/Web/20091528.htm

Have the client get a copy of the DBA certificate they filed and provide that to the lender or have the client provide copies of prior tax returns or bank statements.

If you decide to go ahead, and I hope you don't, be sure you have a disclosure consent signed by your client.

[Bees Knees]

I tell the client that I would be happy to provide copies of Schedule C that I prepared for the years in question, and the bank can reach their own conclusion as to what a Schedule C is. But as for providing a letter that gives any kind of assurance to a third party such as a bank, I tell the client that is a level of accounting that I am not licensed to do. I tell the client the letter would be the equivalent of a CPA performing an audit or a review for a business. If they need that kind of service, they need to hire a CPA because I don't do audits or reviews.

[taxea]

I would delete the first sentence of JohnH's letter and use only the last paragraph, if anything. Usually I tell the client to have the person requesting the letter to call me so I can tell them that "the Sch C on the return is the only "personal knowledge" I have that the client owns a business and if verification is needed he/she should visit the address of the business to verify it exists and there is a business there. Not all businesses file with the local DCCA. Usually it is only the ones that are required to be licensed by the state. I don't and I have not filed with DCCA other than for a dba name so no one else can open a business in the same name.

[JohnH]

I freely admit I contradicted my previous posts in writing the letter. I can only offer the usual excuses (personal friend, long-time highly profitable client, excellent client relationship, mutilple clients from this one referral, intimate knowledge of the operations of the underlying LLC even though I don't prepare the returns for the LLC, etc). I also know none of this would matter much if the loan went south and the lender were looking for scapegoats.

I emailed the letter to the client for him to forward to the lender if he wishes. I also told him this was a " if you can't impress them with brilliance, baffle them with BS" type of letter. I also explained to him in detail what the lender is up to and that no matter what they say or ask for,I can't go further than this. His response was that I should protect myself and he was a little offended that the lender would take this approach since they can get the info directly from IRS.

Bottom line is that it's a refi done entirely for the purpose of marginally improving his rate, and his position is he can take it or leave it, depending upon what the lender does next. So everybody has staked out their position and there aren't any other expectations of me. Overall I'm OK with it and I can only think of a couple of other clients I'd even think of doing this for.

Incidentally, my family physician did have soemthing to say about this. I just returned a few days ago from another 2 weeks in India and he says my better judgement will return after I've finished my current course of Malarone (malaria preventative)