Retirement Income From Another State

[Gary]

I have a new client whose previous tax preparer has been doing his return incorrectly. He has retirement income from the State of Utah, but has lived in Arizona for the past 10 years. The tax preparer prepared a Utah return, had the client pay taxes to Utah, and claim a credit on the Arizona return. Can I only amend these returns for the past three years?

[FEDUKE404]

Probably only last three years can be repaired

I have a new client whose previous tax preparer has been doing his return incorrectly. He has retirement income from the State of Utah, but has lived in Arizona for the past 10 years. The tax preparer prepared a Utah return, had the client pay taxes to Utah, and claim a credit on the Arizona return. Can I only amend these returns for the past three years?

That would be my best guess, although if the tax differential (AZ/UT) was significant you could always try to beg for (past) forgiveness.

I do think you are basically obligated to at least repair (de minimis suggest same to client) those three years....likely will owe AZ some $ and get some $ back from UT. The problem I see is what other "surprises" might lurk once you start entering the client's data for the relevant tax years.

As for his prior AZ preparer, I think (s)he needs to go back to a basic tax school. . . . . . . WOW!!

FE

[ChEAr$]

Yes, should advise client on propriety of amending 3 years. However......

What IF Utah balked on refunding? Would the client blame you because he had to pay Arizony?

How much trouble might it be to plead with Utah for refunds? How much time?

Food for thought.

[Traveling EA]

taxes paid on other state retirement

It used to be, in WI, that any retirement that was earned here, was taxed here, even after the retirees moved to FL. I don't remember the year it changed, but was probably in the '80s.

[Larmil]

It used to be, in WI, that any retirement that was earned here, was taxed here, even after the retirees moved to FL. I don't remember the year it changed, but was probably in the '80s.

Other states (IA and CA come to mind) did such in the past. It was a federal law that changed it.

[David1980]

California nonresident instructions still have a blurb in there "California does not impose tax on retirement income attributable to services performed in California received by a nonresident after December 31, 1995." It was h.r. 394 that did it. http://www.tax.ohio.gov/ohio_individ...ttachment.aspx

[Roland Slugg]

That would be my best guess.

You could always try to beg for (past) forgiveness.

I do think you are basically obligated to at least repair

Oh, please! Guessing? Begging? People who post here are looking for authoritative information. And regarding that last comment, the current tax preparer has no such "obligation." Only the taxpayer is obligated to correct prior year returns.

Some states have a 3-year statute of limitations for amending returns, but some have a 4-year statute of limitations. Utah is three ... Arizona is four. So if amended returns are filed for this taxpayer, what will happen with the 2008 Arizona return? That's a closed year in Utah ... no matter how much "begging" is done ... but an open year in Arizona. If Amended returns are filed for 2009, 2010 and 2011, Arizona may very well ask about 2008 ... and send a bill for that year's underpayment.

Regarding tax rates, Utah's individual tax rate has been a flat 5% since 2008, whereas Arizona's rate is graduated, starting at about 2.5% and topping out at about 4.5% on higher taxable incomes. So there would be some net benefit to the taxpayer ... except for the problem with the 2008 year. I suppose you could advise your client to file amended returns in Utah now ... especially the 2009 year with a 4/15/2013 deadline ... then wait until after 4/15/2013 to file the Arizona amended returns. By then the year 2008 will be a closed year in Arizona. One option to consider (if the taxpayer wants to do anything at all), would be to file the Utah amended returns, then wait to file in Arizona until the taxpayer receives his Utah refunds, thus hedging against the possibility of Utah denying the refunds. The taxpayer will pay a little more interest this way, but at least he won't double-pay tax to both states.

Balanced against all this is a simple economic reality: How much are we talking about here? With a tax rate differential of between 2.5% and 0.5%, would it be worthwhile to go to all the trouble? Plus there is always the possibility that one or both states will decide to take a closer look at some or all the returns, perhaps unearthing more unwelcome discoveries.

Perhaps the taxpayer should instead send a bill to his former preparer asking him to reimburse for the additional taxes he needlessly paid for the past ten years. Good luck collecting that!

[Edward]

My son worked for the USPS in Calif, as did his wife with School System. After they retire shortly and plan to move to Texas are they going to be required to file a Calif tax return?

[FEDUKE404]

You were saying?

Oh, please! Guessing? Begging? People who post here are looking for authoritative information. And regarding that last comment, the current tax preparer has no such "obligation." Only the taxpayer is obligated to correct prior year returns.

....

Apologies gracefully accepted:


What to Do When an Error Is Discovered

SSTS No. 6 states that a CPA “should inform [the client] promptly upon becoming aware of an error in a previously filed return, an error in a return that is the subject of an administrative proceeding, or a taxpayer’s failure to file a required return.” SSTS No. 6 also recommends that the CPA advise the client about the potential consequences of the error and recommend corrective measures. The CPA may give the recommendation either orally or in writing.

Section 10.21 of Circular 230 imposes similar obligations on tax practitioners who discover an error or omission on a tax return. Both Circular 230, Section 10.21, and SSTS No. 6 require that the practitioner make the client aware of the error or omission and its potential consequences. The practitioner has this obligation whether the error resulted in an underpayment or overpayment of tax. Additionally, the obligation exists whether the error relates to work done by the practitioner or another tax professional.


FE

[Gary]

Thank You All

I did talk to the client and they do want to amend. I did suggest amending Utah first and make sure they get the refund before amending AZ. I hadn't checked on Utah and appreciate the idea of amending 1009 and waiting until next year to amend the other two. I might have some questions about amending Utah after I do a little studying. I will start a new Thread.

Thanks again.

[Gary2]

Other states (IA and CA come to mind) did such in the past. It was a federal law that changed it.

P.L. 104-95, passed in 1996. It's unnamed, so a bit tricky to find.

[taxea]

My son worked for the USPS in Calif, as did his wife with School System. After they retire shortly and plan to move to Texas are they going to be required to file a Calif tax return?

No CA cannot tax retirement income if the then resident no longer lives in CA.

[taxea]

I did talk to the client and they do want to amend. I did suggest amending Utah first and make sure they get the refund before amending AZ. I hadn't checked on Utah and appreciate the idea of amending 1009 and waiting until next year to amend the other two. I might have some questions about amending Utah after I do a little studying. I will start a new Thread.

Thanks again.

Why wait for either...amend the years that you can. Charge the client a calculation fee to determine if there was an loss to him due to preparer error and advise him to go after the preparer for his unable to claim losses. I would also recommend he, or someone, report the preparer.

[Larmil]

P.L. 104-95, passed in 1996. It's unnamed, so a bit tricky to find.

Thank you. Maybe it is hard to find because it amended Title 4 USC rather than Title 26.