Explanatory Attachments?

[RayT]

Client couple are seniors and have had unusually high medical deductions due to spouse's open heart surgery; and, unusually high non-cash charitable contributions due to downsizing after 30 years of accumulations (no single item exceeded $500). Should they file a "paper" return with Form 8948 and attach explanations for the higher than usual deductions? Or, eFile and hope for the best? Thank you any comments. PS: My system does not support attachments to efiled returns.

[JohnH]

I don't attach anything to a return which isn't required. It's usually a waste of time, and I'm betting it can just as easily be argued that an attachment invites closer scrutiny. I've prepared returns that I just KNEW woudl be audited because of some unusual deduction or income item and they sailed right through.

In your case, it wouldn't be unusual for seniors to have high medical deductions for a host of reasons, so as long as the deductions are genuine you really don't need to be concerned about it. Unusually high medical deductions and non-cash contributions could just as easily be the result of a couple moving into a skilled nursing facility, so it's not as unsual as you might think. Besides, if IRS has questions, they have your clients' mailing address.

I'd probably just tell the client they have a higher-than-normal probability of IRS asking them to verify some items on the return (the client already knows this anyhow), and they should not worry about it if they get an inquiry (don't use the word "audit"). That should help put them at ease and hopefully they won't go into full panic mode if IRS does write to them.

[FEDUKE404]

No need to paper file or attach extras

Client couple are seniors and have had unusually high medical deductions due to spouse's open heart surgery; and, unusually high non-cash charitable contributions due to downsizing after 30 years of accumulations (no single item exceeded $500). Should they file a "paper" return with Form 8948 and attach explanations for the higher than usual deductions? Or, eFile and hope for the best? Thank you any comments. PS: My system does not support attachments to efiled returns.

I'm not quite sure I follow the purpose of your statement re "no single item" highlighted above. If the amount shown on line 17 of Schedule A exceeds $500, you must prepare a Form 8283. The only modification is if the value of "an item" (column h) did not exceed $500 then you need not enter anything for columns e, f, and g. I would assume most of the non-cash "accumulations" went to only a handful of suitable agencies, via a few donation trips, as opposed to making 100 different contributions (each less than $500) on various dates to various agencies.

I do agree there is no need to wave a red flag by needlessly filing on paper and/or attaching unrequested documentation. (What would be your "explanation" shown on any Form 8948?) If your facts are sound and all receipts are in order, you have nothing to fear. As JohnH mentioned, there is nothing wrong with telling the client their return may be subject to further review due to (whatever).

FE

[ATSMAN]

When I first got into the business (still doing paper returns) the accountant who trained me said, don't give the IRS any written explanation that is not legally required to show how smart you are! It usually comes to bite you. Once you get the CP2000 that is the time to provide explanations. Back then we could actually go to the local IRS office with the taxpayer and talk to a human to resolve the issue.

[Black Bart]

My two dollars (inflation-adjusted) worth

I think you're probably better off e-filing it. I've also sent off some high-dollar deductions the last few years and, while I worried, they sailed on through. I agree with John that there's probably more risk in the scrutiny you'll get from sending in papers with "complicating" documents. As accountants we love to explain things, but IRS is geared to volume processing and they don't want explanations; they want stuff clerks can run through the computer without a more knowledgeable upper-tier employee having to look it over. While big deductions up the audit risk, it's still probably less risk e-filing because the clerk probably knows lines and numbers, but maybe nothing about taxes and will just shove it through without a ripple (audit odds are favorable overall -- less than 2%). I haven't had any get checked in several years no matter what I sent.

FE had a good point about 8948 ("What would be your explanation?") because, looking at the only line on the form that looks applicable (6C-"Other"), it states "Describe below the circumstances that prevented the preparer from filing this return electronically." You obviously can't write in "I'm afraid of being audited." And the 8453 is narrowly restricted too -- wouldn't fit your case.

P.S. I do disagree however that there is nothing to fear -- it's not that we don't usually have the records to prevail in an audit, it's just having to go to one with all the time and trouble involved plus the client's emotional baggage re an IRS audit (not to mention my own). But anyhow, if they did question you -- with the stuff you're talking about, they'd probably just send a letter asking for verification by mail of your deductions.

[Gretel]

High Medical Deductions

Just from my experience: I had a car accident two years ago and my medical deductions exceeded my income by $20,000. So far I haven't heard back from the IRS.

[FEDUKE404]

Related question on medical expenses issue

This is a slight turn from the main topic, but still related.

Over the years I have heard "through the grapevine" that, all things being equal, there is less of a chance of a tax return being audited merely due to the presence of excessive medical expenses as opposed to other deductions shown on Schedule A. The associated logic is something along the lines of "everyone knows (thinks?) they can deduct medical bills" and thus they likely do have an (over)abundance of receipts.

As related to this thread, that would almost mean the darker red flag might be waved on this tax return due to the presence of a large number of non-cash contributions, in spite of whatever may appear on the required Form 8283.

Any input, including lessons learned from the IRS School of Hard Knocks, on this side issue would greatly be appreciated. FWIW, I do have a vested interest in the answer as, for the past few years, my family tax return has shown significantly large (and allowable!) medical deductions which now drop my taxable income to near zero. Some days I almost fear walking to the mail box.

FE

[taxea]

I efile the returns but I do detail the donations as much as allowed. I also keep a copy of the documents I used to input the donations so if the IRS questions anything I don't have to ask the client for the information.

[Snaggletooth]

Mentality of Providing Attachments

Usually, there is a noble mindset involved for one to attach extra information. Some people think they will be absolved of suspicion by a kindly and understanding IRS.

Unfortunately, the reality of the situation is that a hands-free and slick e-file gets no scrutiny, at least initially, whereas a paper return with attachments does nothing but cause someone to look at it and hand-input the thing with no appreciation whatsoever.

If large deductions trigger questions, just wait for them and be prepared to inundate them with documentation when that happens. The questions may or may not come.

[taxea]

I concur with Snaggletooth

[Black Bart]

And also,

I concur with Snaggletooth

I concur.

Let them catch me if they can.

[DaveO]

Agreed, attachments are futile.

Never have I seen the IRS read an attachment. I just answered a CP2000 for a client that had numerous "other income" items on line 21. There was an attachment that listed the items out and totaled them. I hadn't prepared the original return and would have reported the items differently but it was clear from the notice that the IRS didn't look at the efiled attachment.

Even more so if you think items are controversial. I have a long term client that always had large donations. The amounts were not excessive for their income but some of the charities were not of the typical sort. I advised them of the fact the items were questionable but received assurances that all was on the up and up. I asked for and received the donor letters which were rather amateurish but otherwise complete. Then came the correspondence audit with charity in the cross hairs. I provided the detail of the non-cash items and the handwritten donor letters to the IRS and advised the client they might want to get some money together. In the meantime I researched some of the “charities” and found that while they claimed to be 501(c3) they had not ever filed the 1023. The next letter from the IRS was a “no change”.