State Returns for Clinicians, people who do work in many states

[equinecpa]

I was really disappointed yesterday. I lost a long time client due to the fact that last year I prepared a state return for income they earned out of state. They live in TX and normally only have to file a TX Franchise tax return for state income taxes but in 2012 they earned over $100,000 in OK which was 1099'd. I said it was best they file an OK state return as that income was reported to OK State. The income tax liability after expenses was only about $100. They were really annoyed and asked others in the same industry (horse showing) if they file state returns for prize money earned out of state-they didn't find anyone who did.

I know I was right preparing the return, and I do so for all the horse racing clients I have who earn money at various tracks in various states. I was just wondering if there is a point where you draw the line? I have many clients who do clinics and judge in many states and I don't do state returns for each state they judge in or do a clinic within. Most receive some 1099's from the various states.

Just curious what others do, as I don't feel like loosing all my clients to those who don't do the state returns

Carolyn

[buzzardbreath]

You were correct

Equine, you were correct in what you did.

I had an incident with people who sold sec. 1250 property in Minnesota and moved to Alabama so they could live out their retirement in a warm climate. I asked them about Minnesota taxes and they responded that their MN preparer would send them a K-1 if anything was due, and until they received something, they would not report the sale to MN or file a return.

A couple years later, Minnesota (a very aggressive state dept) had tracked them down. Not only did they have to pay, but the SOL for taking the out-of-state credit for Alabama had expired. Had they filed upon the sale, they would have partially had the MN tax credited to their Alabama return. Who were they mad at? You betcha, ME!

Never again. I will prepare an out-of-state return if it is due, and if they prefer I'll give them a paper copy to file. Then if they don't mail it in, the burden is on them.

[mastertaxguy]

What is done is done, but you may want to look at Oklahoma Tax Commission letter ruling LR-13-028, May 9, 2013 and keep it in your files for future use. Regardless of being correct, losing a client is never pleasant. But not buying an audit is more rewarding.

[ATSMAN]

I agree. I would rather lose a client that wants to play games than buy an audit!

Consider yourself lucky!

[Roberts]

What I would do is explain to the client that the 1099 when produced has 3 copies:

Copy A goes to the IRS which means the IRS will be expecting to see it on your return.
Copy B is what you have in your hand and it's what you use to report it on your return.

In between is Copy 1. That was filed with the State of Oklahoma. Guess what the State of Oklahoma is expecting to see!


States have income guidelines for when a return is required and when it isn't. For Oklahoma I think it is $1,000.

[ATSMAN]

Also tell them that IRS exchanges tax data with all states and that is the reason the audit letter from the state comes 1 to 2 years after filing!

[equinecpa]

What is done is done, but you may want to look at Oklahoma Tax Commission letter ruling LR-13-028, May 9, 2013 and keep it in your files for future use. Regardless of being correct, losing a client is never pleasant. But not buying an audit is more rewarding.

That's a great letter ruling-I think I will forward that to the client just so they know I'm not wet all over.

Is there a point where you draw the line? Say a clinician does seminars in 25 states in 2013, billing $3000 for each seminar. That clinician will receive (or should) receive 1099's from 25 states. For those states that have state taxes would you then review each state and see what their minimum non-resident filing requirement is? I do have a few clients that do this be it judging, competing or instructing. I can't imagine telling them they need to file 25 returns... I won't be negligent and knowingly turn a blind eye to the filing requirement though...

[mastertaxguy]

"Jerry Springer" Tax Service?

That's a great letter ruling-I think I will forward that to the client just so they know I'm not wet all over.

Is there a point where you draw the line? Say a clinician does seminars in 25 states in 2013, billing $3000 for each seminar. That clinician will receive (or should) receive 1099's from 25 states. For those states that have state taxes would you then review each state and see what their minimum non-resident filing requirement is? I do have a few clients that do this be it judging, competing or instructing. I can't imagine telling them they need to file 25 returns... I won't be negligent and knowingly turn a blind eye to the filing requirement though...

Forward to the former client? what would be the point? Can you even do that under circular 230? Just keep it in your files for future reference. The client is gone: you are still there. Unless you are in the business of rubbing dirt in their face, let it go and move on. This isn't Jerry Springer Tax Service, is it? If they come back, welcome them with open arms, a brownie or two and hot coffee or something. And a bill three times larger than they would have otherwise paid. If they don't come back, you are better off.

Move on to something interesting and easier: like partnership basis step up elections under IRC Sec. 754.

[BOB W]

Prepare the OK return and let them paper file it,,,, as suggested above.