Poll: Suspicious W-2

[Snaggletooth]

I responded to RLyman with a poll deep within the thread, so I'll make it an official poll with this new thread.

Situation: Anxious comes in your office wanting you to rush and e-file for his return. You notice that his W-2 contains a suspicious item, and most likely is incorrect. W-2 indicates employee has contributed $750 to a Roth IRA, but also reports $750 less for taxable income than for Social Security wages. Should you?

a) File the return based on the W-2 even though you believe it is most likely in error? After all, this is the employer's responsibility, not yours.
b) File the return based on the probable situation, even though you are not certain there is an error. After all, the employer will probably have to correct this, and this will save you the headache of filing an amended return.
c) Hold up on filing the return until the employer has been contacted. Your customer will be furious because the delay will hold up his e-file.
d) File the option which results in the highest tax liability, then file an amended return, if necessary. After all, this is about getting back money for your customer as fast as you can.

Guess I don't know how to make this a fancy poll, but these are the choices.

[JoshinNC]

C

Explain that it is cheaper in the long run for the client to wait.

[Brad Imsdahl]

The answer is c.

When you sign the return as a paid preparer, you are stating under penalties of perjury that to the best of your knowledge and belief, the items on the return are true, correct, and complete. If you suspect something is wrong, you can't sign that statement.

[Snaggletooth]

2/3 Rule??

Thanks Brad. Not many responses but it appears most of us prefer to take our time and do it right.

Many of you have noticed I sometimes get "poll happy" and poll the readers. One of the side-effects of having a poll is the poorly designed and practically unenforceable "2/3 rule."

Some years ago, in an attempt to crack down on unscrupulous tax preparers, the IRS suggested a "2/3 rule" on new regulations. Simply put, the IRS was trying to quantify the reason and motive for positions taken by tax preparers. Formerly, IRS could not successfully prevail against preparer opinions/knowledge, as preparers could always claim that "Beauty is in the Eye of the Beholder." The tax result was rarely unsettled -- what the govt wanted was a fail-safe vehicle for assessing preparer penalties and making them stick.

So [!!!POOF!!!] they established this 2/3 rule. If two-thirds of the tax preparation industry would not support a preparer's position, IRS could declare a preparer position as being unreasonable at the hands of their own fellowship.

I think this regulation still exists, even though a canvassing of the tax industry on any such issue has never been done by the IRS. Although conceived as a tool to discipline
unscrupulous tax preparers, those of us who have different perspectives believe such regulations to be an attempt by the IRS to shove their own audit and judiciary responsibilities onto the tax preparation industry. I share this perspective, and believe tougher IRS enforcement for blatant tax abuse is a better avenue for achieving their objective than issuing endless non-descript ridiculous regulations such as the 2/3 rule.

Having said that - does it change the way we participate in polls?

[OldJack]

I think this regulation still exists, even though a canvassing of the tax industry on any such issue has never been done by the IRS. Although conceived as a tool to discipline unscrupulous tax preparers, those of us who have different perspectives believe such regulations to be an attempt by the IRS to shove their own audit and judiciary responsibilities onto the tax preparation industry.

I am not aware of any such regulation. I have always said that I will not be an employee of the IRS and do their job for them. I work for the taxpayer and will prepare his tax return within the laws and regulations, but I will not police or audit the taxpayer as an IRS agent would. Its not my job.

[Snaggletooth]

It's been around

Jack, I feel much the same way you do. I've even known cases where hard evidence was given to the IRS and they STILL did nothing.

The first source of the "2/3 rule" that I remember came in that annual publication sent to preparers who ordered the Package X and other forms. Since this was sent to almost all preparers of any mention, the IRS would use the opportunity to flaunt their latest regulations designed to place us in the position of tax collectors.

One of those forms contained new regulations which were quite verbose. Seems like it was 8-9 years ago. Discontinuance of the Package X has allowed us to avoid reading their annual threats if we choose to.

[RLymanC]

How about this option

It will take forever to get a corrected W-2 from employer. Show the taxpayer exactly what will happen when the W-2 is corrected. Have taxpayer file the return.

Have the employee try for corrected W-2, if none issued, wait till refund is issued, file 1040X pointing out error on W-2, let the IRS decide. In the above poll, this taxpayers refund will increase due to increased earned income that will increase EIC.

Checked payroll department this morning.....Code AA should have been Code D....person doing the payroll went to the IRS web site for the code at the beginning of the year and decided code AA was the one to use for a deferred compinsation 401(k). Corrected W-2 will be issued ASAP