$10,000 Hobby Income Rule

[JoshinNC]

I base all my comments about

The comment from the taxpayer is clearly hearsay and to be honest with you, I question its veracity. I believe it's true that these employees earn money for additional forms and entries on the returns they prepare. So are you telling me, the preparer is going to hurt him/herself by ignoring income from a business/hobby on a routine basis? Hard to believe.

I have no connection to HRB but from attendance at local EA chapter meetings, I do know a good number of EAs who work for them. These EAs are all quite competent and I will put their tax knowledge on a par with most of the posters on this board. Personally, I find it silly that other posters automatically accept the original post as factually correct. The company commercials on television may often contain hyperbole and the company does have short-term seasonal preparers but I still won't accept hearsay as being equal to fact.

HRB, JH and Liberty solely on returns I review that I have seen them prepare that are brought to me by clients for review.

[DaveinTexas]

The point of my posting

This was not to bash H&R Block because, truthfully, they are not my competition. Most of my clients and new clients view the Block and others merely as a convenience store. Low wait or no wait, most times, get in get out (regardless of how accurate the return may be).

But it's one thing to give incorrect advice, a whole other thing to give advice to a client that perpetuates fraud. And guess what, the IRS (in my experience) doesn't apply much weight to "reliance upon the preparer" to avoid costly penalties. While it is the burden of the IRS to prove fraud (intent), it doesn't help that we have Premium preparers doling out bad advice that leaves someone like us to sort it out for the client.

If the returns were prepared correctly in the first place this particular client wouldn't be in the position they are in (under reported income). They paid for the service too. H&R Block, because of their LARGE industry presence should have the highest quality control and they just don't.

Off the soap box now. Again, no intent to incense anyone, just wanted to share the odd story.

[ChEAr$]

Although I must say I have seen this mistake made by many preparers. Wonder when the IRS will start asking for basis worksheets as required attachment, it may be coming soon, they have started with the 1099B.

See instructions for schedule e, page e-9:
If you are claiming a deduction for your share of an aggregate loss, attach to your return a computation of the adjus-ted basis of your corporate stock and of any debt the corporation owes you. See the Schedule K-1 instructions for details.

[Burke]

I actually spent some time researching this. New client calls (referred by friend at work). Client tells me he is a W2 worker, wife is not, she operates a Sole Prop but "we aren't reporting anything with it because the income is under $10,000".

I had one of these. She was my client; and it came to pass that she turned 62 and started drawing SS early. So she comes in a year or two after that, and I determine based on her income documents that she does not need to file. I pose the question, does she have any income from any other sources? (Well, confidentially she says, she does get a "little bit" from doing hair in her home, but it's not enough to worry with.) How much? About $10K. Amazing. She says she can't report that or she will have to pay back her SS. Yes.... that, combined with other wages, she will. So she leaves. Ok. Next year, she calls again. I did not return her call. Haven't heard from her since.

[Snaggletooth]

Block - Balanced Look

Block bashing is a subject that comes up occasionally on this forum, and I think we should settle on a balanced look at what they are and what they do. The sponsors of this board do not allow Block-bashing (or bashing of anyone else for that matter, even personal attacks). Yet, I believe HRB is such a factor in our industry that we cannot just hide from talking about it. But if we ARE going to discuss it, we can at least take the matter as a whole and not just concentrate on the warts.

Block engages part-time preparers, and in many cases these preparers are chosen from the cream of students who have attended their school. Although lacking in experience these are, for the most part, bright. From that point forward their experience comes in waves from high volume stores. After one year, many of them decide tax prep is simply something they don't want to do, and some of them stay on and accumulate years of experience. A typical Block office will have varying degrees of experience, including some who become EAs. The typical Block office will have at least a couple preparers who are well-versed and at least on the level of most of us on this forum.

Those of us in private practice have encountered large numbers of ex-customers who have not been served well by some of the beginners, and that is not a positive comment about Block, but is understandable under the circumstances. Horror stories you might hear would not surprise anyone, even experienced Block people. Their business model is not set up for high-paid preparers to service complex returns - it is set up for preparers with adequate training to open the door to the general public. When we encounter an occasional poorly-prepared return by Block, we just need to look at the situation for what it is, and how Block operates its for-profit business. They serve the public in ways we don't, they run ads that we don't, and they provide some services that we don't. And to compensate for the lack of experience, they have a quality control program many of us would die for. In contrast, I had a new client move here from Florida who had been to one preparer at Block with a very complex return, and the work was absolutely excellent.

The Premium service is a different matter. This is Block's attempt to service the more complex returns. We have some of the better-trained preparers on this forum that you know quite well. Gary from Phoenix in his first career was a Nuclear Physicist. Oleander posts quite often and at the risk of being flattering, I would describe her knowledge and approach as in the upper echelon of our comrades. You can't Block-bash either of these for lacking in anything. Similarly, we have the entire spectrum of expertise posting on our forum as well. We have some with extensive knowledge and experience who graciously share with us. And I dare say we have some of us who are every bit as naive and inexperienced as those we point our finger at Block.

The $10,000 hobby statement parlayed here I would be much more suspicious as a fabrication or misinterpretation coming out of the mouth of the client as I would coming from the mouth of an experienced Block premium preparer. Many clients will excuse their non-reporting in their own minds and then explain it away by blaming someone else. This includes everything from former preparers to hairdressers.

[Gary]

Hard to Believe

As an H&R Block employee, I find this hard to believe. Even a first year employee knows better,

[David1980]

I don't find it hard to believe, but that's just about the numbers. Hire enough thousands of people and you're going to end up with a few that have their problems. I'd be shocked if every person employed by HRB was perfect. I'd be surprised if every person employed by any large company was perfect. When I was employed at HRB for example the question came up at a training thing whether a firefighter can claim a meal expense - the correct answer was provided and an office manager had to admit to an "oops" as they told one of their people the wrong answer. It happens.

[JohnH]

I would have expected a hair stylist to be much more knowledgeable about taxes than this. Perhaps she hasn't been keeping up with her CE. Her customers should be very wary of any other tax advice she is rendering.

[Y2KEA]

Snaggletooth - Balanced Look

I agree with all Snaggletooth has to say. I came up through the HRB ranks. They have an outstanding education & CE program. Yes, first year preparers might be somewhat questionable as to knowledge & understanding of the code. But if they have problems on the firing line, there are still many experienced preparers in that office to help them if they ask for it.

No preparers are promoted to Premium without the proper experience & qualifications. I know. I was one of them. I was not invited to Premium until after being issued my EA ticket. HRB CE is top notch and intensive. Back in the day it was pencil & paper. If you couldn't do the form, how could you have any faith in what you were doing and the accuracy of the return?

For a client to claim that his HRB Premium preparer expressed this $10K advice is doubtful in my mind. We all know that people many times hear what they want & not what is actualy said.

I have not worked at HRB for over 10 years as I now have my own practice. I am not bashing or supporting them. I am simply stating my experience & observations while I worked there.

[joanmcq]

I've got new clients with rentals in Hawaii, and they were told they did not have to file an HI return. The rentals, with the addresses, are on the return. I have the Block returns right in front of me. the income exceeds the nonresident filing threshold.

And yes, I worked with a woman that had been Block Premium and she was excellent. But I've seen a lot of crap come out of the franchises.

[Bees Knees]

The comment from the taxpayer is clearly hearsay and to be honest with you, I question its veracity. I believe it's true that these employees earn money for additional forms and entries on the returns they prepare. So are you telling me, the preparer is going to hurt him/herself by ignoring income from a business/hobby on a routine basis? Hard to believe.

I have no connection to HRB but from attendance at local EA chapter meetings, I do know a good number of EAs who work for them. These EAs are all quite competent and I will put their tax knowledge on a par with most of the posters on this board. Personally, I find it silly that other posters automatically accept the original post as factually correct. The company commercials on television may often contain hyperbole and the company does have short-term seasonal preparers but I still won't accept hearsay as being equal to fact.

I agree with New York Enrolled Agent.

This is a case where the preparer probably told the client the activity was a hobby, not a business. Maybe expenses appeared to exceed income. Who knows, but I doubt strongly that the preparer was just going to leave off the income entirely.

Before everyone jumps on this guy with hearsay evidence, ask yourself what kind of miss information your former clients are saying about YOU?

[Bees Knees]

And yes, I worked with a woman that had been Block Premium and she was excellent. But I've seen a lot of crap come out of the franchises.

And I've seen crap come out of EAs and CPAs. Seriously....and most of you know who I am and how I am in a position to know...That doesn't mean I'm going to judge EAs and CPAs as incompetent.

Enough of the Block bashing. I was trained by Block just like most of you were. Reporting every dime of income, including hobby income was instilled in our brains, oh, I'd say by week two of the class.

[Super Mom]

I forget. Why does the IRS want to test everyone?

Sad part is, they are probably "supervised" by a CPA and don't have to test-------I know a CPA who is exempt from testing and knows nothing about tax prep!!!!! Testing is a big joke intended to push out little guys like me!!

[ddoshan]

I am always suspect when a client tells me that a previous preparer told them something that is out of line. I know from experience that I have clearly explained something to a client and they later come back and state that I told them blah, blah. Completely misinterpreting, either on purpose and or just not understanding, what they were initially advised or told.

Having said that, I have prepared many returns over the years that were previously done and signed by CPA's, Accounting offices, legitimate tax prep people, etc. that were just plain prepared incorrectly. Often with very basic mistakes. So HRB having prepared 22 million returns a year, one would suppose there just might be quite a lot of complaints.

I would be willing to bet that there is no one on this board that has prepared 100's of returns over the last 5 years that has not made a mistake either from lack of knowledge or just inadvertently forgetting something or inputting something incorrectly. Except myself of course.

[taxxcpa]

I would have expected a hair stylist to be much more knowledgeable about taxes than this. Perhaps she hasn't been keeping up with her CE. Her customers should be very wary of any other tax advice she is rendering.

Usually the first place most people go with tax questions is to their barber or beautician.