Preparer error

[kamckinley]

Have TP sign form 2848 when TP signs tax return. I started this practice with approx. 1/2 my clients and this year I aim to have all of my clients sign them. This way I will be permanent POA and receive copies of all IRS correspondences unless TP changes POA.

Great idea, thanks for posting it!

[kamckinley]

Sorry to keep beating a dead horse, but I've been thinking about the penalty abatement letter. If a taxpayer requests penalty relief because of a tax preparer error, does the IRS follow up with the tax preparer? Am I shifting the penalties from the taxpayer to myself if I help them draft a letter requesting penalty relief for my mistake?

I just found out that the client failed to respond to the 90-day letter that had a deadline of last Friday. They didn't respond to the letter, didn't send in a payment, they didn't do anything. I can't imagine that the IRS would grant any penalty relief given that they have ignored every letter sent to them (I should have copies of all the notices this afternoon, btw). Thoughts?

[dkss]

Last year, I discovered a big mistake I had made on a prior year return. I informed the client (and profusely apologized) of the upcoming penalty letter and to get it to me ASAP. They brought me the letter immediately on receipt, and I paid them the penalty amount. I also wrote a letter (as the taxpayer) requesting abatement of the penalty. The IRS responded back within , it seemed, a month, returning the penalty $.

To date, I have not heard anything from the IRS trying to penalize me for my mistake. But, we know how slow they can move!

[DonB]

If a taxpayer requests penalty relief because of a tax preparer error, does the IRS follow up with the tax preparer? Am I shifting the penalties from the taxpayer to myself if I help them draft a letter requesting penalty relief for my mistake?

I drafted such a letter and the penalty was abated with no blow-back to me. I would have the client send the tax due and interest but no penalty and include the abatement request letter. If a balance due letter arrives for the penalty, I would respond with the abatement request letter once more.

[kamckinley]

Thanks all. By the way, the answer to my question about the penalties would not change how I approach this with the client. Someone on another board questioned my ethics when I posted a similar question. I very high ethics and will do what is best for the client, but that doesn't mean I don't want to know what to expect (regarding the penalties)!

[Super Mom]

That is a mistake that is easy to make with ATX. I also use ATX and those checkboxes can create problems!

[Burke]

I have never had a problem with that screen in ATX, but I can see how it could happen. Wondering though.....was this a new client? If huge losses suddenly showed up that had not in past years, that would have been a red flag.

[kamckinley]

Hi All. Well I finally got the last notice the client received and discovered that this was not a CP2000 like I expected, but an examination by mail (someone suggested above that this might be an exam instead of a CP2000 notice, unfortunately you were right).

The client failed to respond to all requests for information (over a 3-month time span). They received a letter on 1/15/15 saying that the examination would be closed if they did not respond by 1/30/15. Client failed to respond, so now the examination is closed. The letter says that "if you don't agree, you won't be able to appeal with the IRS before we issue a notice of deficiency". Later on in the letter, it says that "if you don't reply by the response due date, we'll process your case based on the proposed changes and send you a notice of deficiency. The notice normally gives you 90 days to either agree to the deficiency or file a petition with the United States Tax Court."

Based on the letter it looks like their only option is to appeal through the tax court. When I started this discussion, I was hoping that we would be able to amend the tax return so that they could carryforward the losses to future years. Is that even an option any longer since the examination has been closed? Have they now lost the ability to carryforward the losses?

Also, there are substantial penalties. Is there any chance to get the penalties waived now that the exam is closed?

I am so mad about this whole situation I can't see straight. Any advice on how to move forward, now that we know this was an exam (that is now closed) instead of a CP2000 notice, would be very helpful and appreciated.

[Koss]

Exam Closed

I don't have any easy answers for you, but here are my thoughts.

A petition should definitely be filed in the US Tax Court. The Court will refer the case to the IRS Appeals Office, regardless of what that letter says. That will provide an opportunity to negotiate penalties, and clarify the issue of carrying forward losses.

Note that I said a petition should be filed. I did not say that you should file the petition.

If your client failed to bring this matter to your attention when there was still time to address it during the examination, I think that kinda gets you off the hook for most, or even all, of the penalties. You'll probably lose the client. But you could have addressed this properly if the client had notified you in a timely manner.

With this client, I'm not sure I would get involved in helping prepare a petition. As I noted in a different thread, the Tax Court does not recognize a POA, and you will not get copies of any notices about the case. If the client can't get you notices from the IRS in a timely manner, what makes you think he will give you copies of the stuff that comes from the Tax Court?!?

It's a recipe for disaster. You won't be in the loop, the case will be moved from the Tax Court to Appeals and you won't know about it, and then the same thing will happen in Appeals: the appeals officer will close the case because the client never responds to any communications. Then it will go back to the Tax Court, and an IRS lawyer will try to contact the client to see what the case is really about. The client may then tell the IRS lawyer that you filed the petition, and that he doesn't know anything about it, or that he doesn't understand it. Then it may look like you are practicing law without a license...

You may need to fire the client. You made a mistake, but the client made a far worse mistake by not responding to the IRS or notifying you.

Refund the fee that you charged, and refer him to a tax attorney.

I don't think any lawyer will help him go after you once they find out that he ignored those notices until it was waaaaay too late.

Yeah, my take on this is a little harsh. I have lost patience with clients that pull this kind of stunt.

BMK

[New York Enrolled Agent]

Hi All. Well I finally got the last notice the client received and discovered that this was not a CP2000 like I expected, but an examination by mail (someone suggested above that this might be an exam instead of a CP2000 notice, unfortunately you were right).

The client failed to respond to all requests for information (over a 3-month time span). They received a letter on 1/15/15 saying that the examination would be closed if they did not respond by 1/30/15. Client failed to respond, so now the examination is closed. The letter says that "if you don't agree, you won't be able to appeal with the IRS before we issue a notice of deficiency". Later on in the letter, it says that "if you don't reply by the response due date, we'll process your case based on the proposed changes and send you a notice of deficiency. The notice normally gives you 90 days to either agree to the deficiency or file a petition with the United States Tax Court."

First, AT THIS TIME, you cannot file a Tax Court petition - you clearly indicate that a 90-day letter has yet been issued. You need a "ticket" to get entrance to the Tax Court.

It appears you had a correspondence audit - the taxpayer failed to respond but based on your error there is no challenge to the tax liability. I would try the number on the correspondence audit notice. Ask for a short period of time to reply. Remember, correspondence audits are all computer driven. If you can get through, you can talk to a living, breathing IRS employee who may be able to help. If you get a extra period to reply, acknowledge the tax liability but then ask for the abatement of the penalty. I cannot emphasize the importance that the reply needs to come from the taxpayer (even if you do the letter drafting).