Sticky SItuation

[erchess]

New client who initially came to me for several years of unfiled returns now says she doesn't think she needs to file. She says she has for the past several years considered herself a contractor working with mentally handicapped adults in a day care setting. I don't know what kind of entity the "employer" is - government, for profit, nonprofit or something else I don't know about. She says when she asked for her 1099Ms she was told none had been issued because her pay is nontaxable unearned income. She is not disabled physically or mentally and she is in good health as far as I know.

Anyone have any advice for me? Her story makes no sense but is there anything to be gained by (with her permission) talking to the accounting folks at the center?

[JohnH]

Sounds to me as though she has made up her mind.

Some folks will ask around until they hear what they want ot hear, then they quit asking.

[Uncle Sam]

Poa

Do you have a POA for this client?
If you do - then you could go to e-services under TDS to see what's been filed
for her. Then you could make your own determination

[Y2KEA]

Imho

1. This person has not filed for many years.
2. She is now being wishy washy.
3. Run Forrest run!

[S T]

I would send her a letter stating the discussion and what you might have determined based on the "facts presented" by her , and relieving yourself of any engagement currently or for past and to possibly contact you in the future, if and when she receives any notices for "non-reported income" from Federal or Associated State Agency.

Sandy

[taxea]

I would send her a letter stating the discussion and what you might have determined based on the "facts presented" by her , and relieving yourself of any engagement currently or for past and to possibly contact you in the future, if and when she receives any notices for "non-reported income" from Federal or Associated State Agency.

Sandy

If you wait for a letter of non-reported income there will be more fees (P&I). I would do as suggested, for a fee of course, and get a POA. Then you can make a professional determination after asking her for more detail...as to whether a Sch C would apply.

[JG EA]

I would send her a letter stating the discussion and what you might have determined based on the "facts presented" by her , and relieving yourself of any engagement currently or for past and to possibly contact you in the future, if and when she receives any notices for "non-reported income" from Federal or Associated State Agency.

Sandy

This is very good advice. I had a client once who had me do several years of taxes, but conveniently forgot to pick them up, respond to letters, pay his bill. As a result the returns sat around for a long time and were eventually destroyed. Ran into this person years later - who didn't remember I was involved - and he said his returns were all done - he knew they were because they were in an office and so were taken care of.
(Taken care of is a relative term. Yes, they were all taken care of.)

[BOB W]

Removed....................must of clicked on wrong thread.

[taxmandan]

New client who initially came to me for several years of unfiled returns now says she doesn't think she needs to file. She says she has for the past several years considered herself a contractor working with mentally handicapped adults in a day care setting. I don't know what kind of entity the "employer" is - government, for profit, nonprofit or something else I don't know about. She says when she asked for her 1099Ms she was told none had been issued because her pay is nontaxable unearned income. She is not disabled physically or mentally and she is in good health as far as I know.

Anyone have any advice for me? Her story makes no sense but is there anything to be gained by (with her permission) talking to the accounting folks at the center?

She probably works as a Service Provider for a government agency, and it is probably not taxable/reportable income. I have a client who has been in such a "job" for the 12 years I have known her. She cares for medically fragile people and is paid by a federal agency and her "pay" is not taxable. I have never quite figured out nor can she explain how that works, but she never has income reported to the IRS as wages or contractor pay. She is an RN and trained in special medical care services. As suggested, you could check her wage transcript with the IRS or if you're really curious contact her supervisor and get the details of the program and how it is excluded from taxation.

[veritas]

Foster Care

§ 131(a) General rule

Gross income shall not include amounts received by a foster care provider during the taxable year as qualified foster care payments.



In our neck of the woods, it is most likely Romanians providing this service.

However, payments made in addition to government payments are taxable.

There are other limitations.

[DaveO]

I think these are "Difficulty of care payments" and as such are not taxable or reportable. However if care is provided for more than 5 such individuals then that rules doesn't apply. Could be the "Day Care" is streching the rules a bit.

All of the people I have seen receiving such payments cared for 1 or 2 individuals in their homes.

[erchess]

TY All

I think I will do 2011 (assuming she has everything) and a POA at my Saturday Appointment then contact E Services about her past on Monday.

[JG EA]

I think these are "Difficulty of care payments" and as such are not taxable or reportable. However if care is provided for more than 5 such individuals then that rules doesn't apply. Could be the "Day Care" is streching the rules a bit.

All of the people I have seen receiving such payments cared for 1 or 2 individuals in their homes.

Except for parents. Difficulty of care payments ARE taxable to parents. I was shocked to find this out - was in an article from NATP. The idea being that the original law was to not create a burden for people who were taken care of these individuals. But something in that law excluded parents - and some are trying to change it to expand to parents.

[erchess]

The Verdict

The couple does have a person they call their roommate who is a mentally handicapped adult. They told me that the payments are for taking care of her and that the money comes from the same agency of which the spouse was formerly an employee receiving wages and a W-2. They told me that they cannot claim the roommate as a dependent because they do not provide over half of her support even if you ignore the stipend they get because the roomate draws SSI and gets a large amount of support from her wealthy parents who live nearby. The wealthy parents send the couple on luxury vacations all over the world several times a year. I didn't think to ask whether the parents and or the roommate go on these trips.

They had some income documents and all of their expense documents for every year but they willingly signed POAs so that I can go after ALL their income. They were a little alarmed by the idea of POA because they didn't want me making for instance financial or medical decisions for them if they became incapacitated. Once I explained that these POAs would have to do only with IRS matters they were very comfortable with the idea.

[JohnH]

You are a knowledgeable tax preparer and I know you to be careful and thorough in your work. But given all you've now said about this situation, I wonder of this is one of those cases where the more you dig, the deeper the hole becomes. Do you think it's time to throw away the shovel? Personally, I'm not sure I'd want my name on their return.