How much trouble can I be in?

[arlo]

I know the client is cooking the books to show more expense.
Is there a disclaimer statement that I could use to protect me.
The person is selfemployed. One page listing income and expenses.

[jimmcg]

I know the client is cooking the books to show more expense.
Is there a disclaimer statement that I could use to protect me.
The person is selfemployed. One page listing income and expenses.

Tell this idiot to take a hike. You don't need him. It is your long term reputation you should be concerned with.

[Koss]

Documentation

If you decide to do the return, you can do a couple things:

Keep a copy of the "one page listing income and expenses." I'm sure you would do that anyway. If you're really paranoid, and the page is computer generated (e.g., MS Excel), and it is not in his handwriting,, you could ask him to sign the page, to document the fact that he, not you, created the page.

Put a cover letter on the return, advising him that you prepared the return based on the data he provided, and that the data he provided is not sufficient to substantiate his income and expenses in an audit.

Depending on how far you want to go, the letter could also:

advise him that representation at an audit is not included in the preparation fee, and/or

advise him of what kinds of business records the IRS expects. You could give him examples, or simply refer him to IRS Publication 583.

The question of just what your responsibilities are in this kind of case gets a little more complicated if EIC is involved.

There's a lot of stuff out there on EIC due diligence, particularly when it comes to Schedule C. If the guy is bringing his income down to a point that is at or near the peak of the EIC bell curve, that's really a red flag. If that's what's happening, I might choose not to do the return. It would depend on the individual facts and circumstances.

BMK

[manyhappyreturns]

I know sometimes it's hard to tell for sure if a client is under- or over-reporting income or expenses. But if I KNOW that is what is happening, especially if there are large amounts of money involved, I tell my clients they need to provide the correct information or I can't do the return. We are responsible for what we know, but then again we aren't the police, so we have to use wisdom in each situation. I always make sure clients know that if they get audited, it's their responsibility to prove their claim, and they almost always say, "oh, yeah, I have receipts for all of it" or whatever. It is really important to document everything clients say, but when we're really busy, it's hard to find the time to document every little thing. The best way is to do what Koss is suggesting, have the client provide a list in his own handwriting and/or sign it and keep it in the file.

Sometimes I'll know someone is under-reporting income because he/she believes the lower the income, the higher the EIC. In cases where they are getting less EIC because they are not being honest, I go ahead with it and get them their lower refund, but of course I don't tell them that's how it works. Then of course there are the clients who have the system figured out and they report their income accordingly. Sheesh!

[ttbtaxes]

If you know the books are cooked you must disengage. I'd send a letter to cover myself but would not accuse him of anything.

If you suspect, then your gut, or your instinct, is telling you the person is unsavory and you should dismiss him immediately too. They are the type that will throw you under the bus in a New York minute. Nothing good can come from it.

Never, and I repeat never, do work for a client if you have any sense of discomfort whatsoever.

[BP.]

Sometimes I'll know someone is under-reporting income because he/she believes
the lower the income, the higher the EIC. In cases where they are getting less EIC

because they are not being honest,

I go ahead with it

Stop. Rethink your policy here. These are not the "dream clients" you mentioned in another thread.

(Although if you can educate and rehabilitate this kind of client, that sometimes works!)

[arlo]

Koss, I think I will take your advise.

This guy is going to get his tax return done by someone and it may as well be me.
Thank God EIC is not involved or I would not do it.
I have seen some returns completed by HRB with no more information than I have here.
Thanks for the input.

[jimfrombx]

In a NY minute is right.

I used to work for HRB years ago (in NY) and in the summer the clients (HRB & non-HRB) would come in with a letter from the IRS. Conversation started " I got this letter from the IRS because the preparer..............

[arlo]

You might be correct.

I am going to give this some more thought.

[AccTaxMan]

I know the client is cooking the books to show more expense.
Is there a disclaimer statement that I could use to protect me.
The person is selfemployed. One page listing income and expenses.

I am surprised you are still even considering doing the tax return when you know he is cooking the book. I would send him out the door with all his tax papers in a New York second. As a courtesy, I would also caution him not to let the door hit him on his way out.

[KathMorgan]

Too right!

I am surprised you are still even considering doing the tax return when you know he is cooking the book. I would send him out the door with all his tax papers in a New York second. As a courtesy, I would also caution him not to let the door hit him on his way out.

I completely agree. The thought that "someone is going to do the return so it might as well be me" is a road fraught with big boulders in the future.
Run him out the door yesterday! Your integrity, training, reputation and licensing does not come with a price tag. And be assured that they are all at risk with this client.
Go back to the "dream clients" and let the nightmares take care of themselves.

[Koss]

Cooking the Books

I agree that there is a difference between a client who is knowingly using false data and a client who is "fudging" some numbers, or using estimates that are not based on a valid model, or just making stuff up. There is a difference between negligence and fraud.

And I tend to agree that if it is crystal clear that the taxpayer is intentionally using false data, you should probably fire the client.

With that being said, in my practice, we don't see a lot of cases like that. We see our fair share of stuff that is goofy, or shaky, or questionable. We don't see many cases where a tax pro can say he is certain that the client is providing false information.

BMK

[joanmcq]

Run away!!!