Sch D DIY error

[Possi]

I have a new client, aka "problem child" who messed up his Sch D so badly on the 2010 tax year that he got a letter. He had negative numbers in his Selling Value column.

He does lots of trading, so lots of "calls" listed on his report.

I re-did the Sch D and I'm responding to the IRS letter with the corrected Sch D. I have included every sale they are looking for, and included all the other trades that are not listed on the 1099B. I have all the back up for referrals.

That was bad enough...

Since he had a loss carryforward, I asked him for the 2009 tax return so I could refer to it. Big mistake. For the cost on ONE of his 2009 trades, he triple-digited a number and came up with $133k loss on ONE TRADE. It should have been $636.00.

That was on the 2009 tax return. When I send in the corrected Sch D for 2010, should I correct the carryforward amount and give an explanation?

Must the entire Sch D be re-done for 2009 with each individual trade listed?

[WhiteOleander]

I'm sorry, but I laighed out loud reading that he put a negative number in the sales price column. (You'd thnk the IRS would be a lot nicer to us professionals just to keep this garbage from being filed)
Anyway, I would tell the client the error I found on the 2009 return. If he would not allow me to amend that return to fix the carryforward, I would refuse to help with the 2010 return. I would not be able to sign a return I knew was materially incorrect.

[Gary2]

I'm sorry, but I laighed out loud reading that he put a negative number in the sales price column. (You'd thnk the IRS would be a lot nicer to us professionals just to keep this garbage from being filed)
Anyway, I would tell the client the error I found on the 2009 return. If he would not allow me to amend that return to fix the carryforward, I would refuse to help with the 2010 return. I would not be able to sign a return I knew was materially incorrect.

If the 2010 is completed with the correct amount, is there ethically a need to amend the 2009?

[Y2KEA]

My experience with IRS is that any changes to prior year(s) returns affecting loss carryforwards will require amended returns for those years.

[WhiteOleander]

I'm not sure the IRS would accept the carryover change with just an explanation attached. It would probably create more letters and hassle by not amending 2009. Why create hassles for myself when their errors caused the problem. If they had come to me in the first place, they wouldn't be in this position. They decided they didn't need a professional...................until they did. So, I say do it correctly or stay a DIY.
(just my opinion)

[Kram BergGold]

Disagree

I have done this. If the case where you are reducing the loss carryforward no one is going to blink except maybe in a full scale audit and then you would just show them what happened and I would think that would be the end of it.

[Possi]

Yep

I have done this. If the case where you are reducing the loss carryforward no one is going to blink except maybe in a full scale audit and then you would just show them what happened and I would think that would be the end of it.

That's what I thought. As long as I am reducing it, which I am. If there is a full scale audit, he can pay me bigtime. I have already spent way too much time on this repair for 2010 with all the calls and trades. I'll never get paid for the time spent. And, amending the 2009 would NOT change his bottom line.

Thanks for all the input~

[Gary2]

That's what I thought. As long as I am reducing it, which I am. If there is a full scale audit, he can pay me bigtime. I have already spent way too much time on this repair for 2010 with all the calls and trades. I'll never get paid for the time spent. And, amending the 2009 would NOT change his bottom line.

And that was the point of my question. I believe he should be able to choose between paying you now to amend 2009 or paying you later if the IRS questions it - and I don't think that violates either the ethical rule against signing an incorrect return (since 2010 would be correct) nor the ethical rule against playing audit roulette (since there's neither an assertion in the return based on that nor a tax benefit). The only benefit to the client for not amending the 2009 return is avoiding the tax prep fee.

[FEDUKE404]

Band-aid approach might not be the best

While you technically may be able to "use" the 2009 carryforward amount, I would probably not make that my first choice based upon the facts presented.

Since the client "triple-entered" some numbers and also showed sales proceeds income as a negative number, there is no telling what other surprises might lurk in the prior year returns. Do not overlook the possibility of inaccurately entered option trades and/or wash sale scenarios. If he was active in dealing with puts/calls, there is a strong possibility he may not fully understand when such actions can lead to cost basis changes....or even outright "sales."

Historically I've found there are often two extremes to those with very active stock market trading activities. One extreme is a very well-organized person, fully aware of all tax implications and rules. The other extreme is someone who treats everything as some form of entertainment and is really quite clueless as to the tax/record-keeping rules involved.

Aside from any potential liability issues on your part, don't be surprised to (later) discover more errors that could make you repeat the work you already face. A simple "fix" could easily turn into a gargantuan task!

At the very least, I would have a heart-to-heart talk with the client (documented) explaining your starting position on repairing his DIY 2010 return.

FE

[Y2KEA]

If the TP 2009 & 2010 returns are "ugly", you might want to look at earlier years.
Just remember, once you open a can of worms, you need a bigger can to put them back!

[Possi]

at a glance

It was more than just a glance that made me find that error in 2009. I looked it over pretty carefully without seriously auditing it. Client is a very well educated man, but getting on in age. In 2009 he made a bad typo and didn't check his figure. I know there are likely to be other errors, but I would have to audit the entire Sch D. If it becomes necessary, I'll be happy to do it, and I'll feel great about giving him a bill.

In 2010, he really messed up that Sch D and he knows it. Since it was done DIY, I can't say what happened to him, if his brain is slipping or if the program wasn't real clear, and I don't really care. He is my new client and I'm happy to fix the problem now, and move forward.

[RitaB]

Just yesterday

Had a DIYer come in yesterday, with a 1040-X in his hand, with his name and address entered, all lower case letters. He has wondering if I could help him the numbers part.

Me: Uh, do you have the original return?

He: No, I filed it online. Free through Turbo Tax. IRS says all I gotta do is this here form, and they'll send my refund.

Me: Do you have the IRS letter?

He: Yep, it's at the house.

Me: Can you tell me anything about what it said?

He: Yep. They say I'm not Head of Household, but Married Filing Jointly.

I turn his 1040-X over, there is Wifey, listed as one of two dependents, still all lower case letters. I see a W-2 with about $20k wages in his other hand. Hmmm. An EIC windfall was averted, I'd say.

OK, decreased, not averted.

[Possi]

I can see him now...

... and what his house must look like...

[RitaB]

The W-2

... and what his house must look like...

The W-2 was a nice shade of nicotine. I think it was a scratch and sniff deal, too.

[Possi]

omgosh

I have spent over 14 hours with this man and this return. I just called to tell him it was ready. He asked what my figures were to see if they matched HIS... LIKE I CARE! And then he said he found another cost basis statement that has one more trade on it.

Honest to goodness, this man needs me. Problem is, I can never charge him enough.

And the Sch D stands as it is.

my head hurts... I need a little wine...