I'm in a hole

[OldJack]

But maybe he really was working for his uncle. I know his uncle didn't do a payroll with tax withheld. So the figures on the W-2 were probably bogus. But if he really worked for his uncle and was paid cash, with a little bit of advice, they could've done the right thing and used a Form 1099-MISC like my other client.

A 1099Misc expense could have been a clever way for Uncle to reduce his Sch-C income, for no work by a relative, and the relative to receive EIC. All benefit except the IRS and the public. Could this be considered a liberal democratic program?

[Koss]

Bogus Reporting Documents

Okay... I'm coming into this thread rather late, but I've actually had a couple of these.

In fact, I had one about a week ago. But it wasn't a Form W-2. It was a Form 1099-MISC.

The payee--my client--was doing freelance clerical/secretarial work. But she only worked for this one guy, and had no other income. The amount of income was right around the peak for EIC, like Jainen said. And of course she had no expenses to report.

The form was handwritten. And the payor did not have an EIN. The form had his SSN on it.

For those who don't do this type of return frequently: Even with a Schedule C, no expenses, and no estimated payments, the taxpayer still gets a phat refund, because with two kids the taxable income is zero, and the EIC is much greater than the self-employment tax.

Suspicious? Perhaps.

Not enough for me to turn the client away, or even think about reporting or verifying it.

I asked all the questions about the kids and the household living arrangements.

And I did the return.

FYI: SSN for the payor is permitted on a 1099-MISC. Look it up. And no, it won't fail electronic filing because the identifying number of the payor does not appear anywhere on my client's tax return, whether they file electronically or by mail. The 1099-MISC does not get attached to the return if they file by mail.

The return was probably legit. As one earlier post noted, some of these folks know exactly when to stop working.

The other one that I had a few years ago was very different. It was, in my opinion, a clear case of fraud. But whoever put it together was a real bonehead. They had purchased software that allowed them to generate a Form W-2. But that's all they did. They hadn't done any other homework, and they simply had no idea what they were getting into.

The guy who came into my office claimed that he was working for his uncle, and actually encouraged me to call him if there was any problem. I think he had already tried to file the return somewhere else, and it had been rejected by the IRS e-file system.

The W-2 had his uncle's SSN in the field used for the EIN. And the client actually told me this. It was formatted like an EIN, but it was his uncle's SSN.

This return, of course, couldn't be filed electronically, because the IRS was rejecting the SSN as an invalid EIN. I politely tried to explain this to the guy, and he became belligerent and verbally abusive. I made it clear that we were not going to file the return, and he finally left the office.

I actually tried to report that one to the IRS. And guess what happened? They told me they weren't interested because the return had not actually been filed. Which makes sense now that you think about it. A federal prosecutor wouldn't waste time on it. They don't prosecute attempted tax fraud.

And now I recognize that providing the data to the IRS without filing the return probably would have been inappropriate, to say the least.

But once a return is actually filed, I don't think it violates client confidentiality to inform the IRS that the documents used to file the return were suspicious. The IRS already has all the data in the return itself. You are simply flagging it for them. You are providing a professional opinion about information that you sent the IRS; you are not providing any confidential information about the client that isn't already in the return.

Ironically, the belligerent client could have been marginally legitimate. I think the overall intent was fraudulent. But maybe he really was working for his uncle. I know his uncle didn't do a payroll with tax withheld. So the figures on the W-2 were probably bogus. But if he really worked for his uncle and was paid cash, with a little bit of advice, they could've done the right thing and used a Form 1099-MISC like my other client.

Burton M. Koss

[veritas]

Bart's Adventure

My friends, I'm in a hole on one of the other software forums, and I hope the greater wisdom here can dig me out. The question came up as to whether you should call an employer to verify a W-2 if you suspect it is fake. It was a popular thread with a dozen detectives weighing in. I was all alone in the minority opinion that it was not a good thing to do.

As usual, I don't mind being odd man out if you all care to join your colleagues against me. But isn't there anyone here who will champion my side? How should we handle those $12000 W-2's we're going to see next week?

"Down, down, down. Would the fall never come to an end! `I wonder how many miles I've fallen by this time?' she said aloud. `I must be getting somewhere near the centre of the earth. Let me see: that would be four thousand miles down, I think--"

Alice in wonderland

[ChEAr$]

valid W2

Won't do any good I reckon to say that your quotes regarding EIC have nothing to do
with a valid W2 or not.

However, calling an employer in the area to ask if he had a certain someone working for
him last year will not get me in trouble. Don't have to mention social security number;
don't have to ask to verify the wage amount. Simply "Did Joe Blow work for you last year?"

Nothing illegal about that.

[sea-tax]

My point is that you can verify without violating Circ 230. As an additional benefit, I think asking for the release would kindly disengage yourself if the W-2 was not legitimate. It's not a common problem in this office because we don't cater to EIC clients.

Understand but still why would one want to go through all this headache for one or two clients that are more than likely not paying a lot and two not loyal. I would say don't throw good time after a bad client.

[Davc]

No offense DAVC but really are any of us that starved for clients that we must go to these lengths to retain business. I for one when faced with what I deem improper dealings willl kindly disengage my self .

My point is that you can verify without violating Circ 230. As an additional benefit, I think asking for the release would kindly disengage yourself if the W-2 was not legitimate. It's not a common problem in this office because we don't cater to EIC clients.

[Brad Imsdahl]

Form 8867, Paid Preparer’s EIC Checklist, line 22 says: “Did you comply with the knowledge requirements? (To comply with the knowledge requirements, you must not know or have reason to know that any information used to determine the taxpayer’s eligibility for, and the amount of, the EIC is incorrect. You may not ignore the implications of information furnished to or known by you, and you must make reasonable inquiries if the information furnished appears to be incorrect, inconsistent, or incomplete.)”

The question is: What is the preparer’s responsibility to make reasonable inquiries if information furnished appears to be incorrect, such as a suspected fake W-2?

Reg. Sec. 1.6695-2(b)(1)(ii) says, “The preparer’s completion of the Eligibility Checklist or Alternative Eligibility Record must be based on information provided by the taxpayer to the preparer or otherwise reasonably obtained by the preparer.”

The regs do not elaborate on this, but one thing is clear; the preparer can satisfy the verification requirement based on information provided by the taxpayer. No further investigation is required in the regs. It does say “or otherwise reasonably obtained by the preparer,” but that is not a requirement.

Letter Ruling 200029008 clarifies this as to what exactly the preparer must do if he or she has conflicting information that would lead one to believe the taxpayer might not qualify for EIC. It says in part:

”To avoid the due diligence penalty under section 6695(g) of the Code, the return preparer must have no knowledge, or reason to know, that any information used by the preparer in determining the taxpayer's eligibility for, or the amount of, the EIC is incorrect. The prepare may not ignore the implications of information furnished to, or known by, the preparer, and must make reasonable inquiries if the information furnished to, or known by, the preparer appears to be incorrect, inconsistent, or incomplete. See section 1.6695-2T(b)(3) of the regulations. Thus, if the return preparer receives conflicting information from two different taxpayers, the return preparer has an affirmative duty to request verification from both taxpayers to determine which information is correct and only file a return with the information the return preparer does not know or have reason to know is incorrect. The return preparer will be subject to the penalty under section 6695(g) if the preparer files a return or claim for refund claiming EIC based on information the return preparers knows or should know is incorrect.”

In addition, under section 301.7216-2(b) of the regulations, a return preparer may not disclose information obtained from one taxpayer to another taxpayer or use information obtained from one taxpayer on another taxpayer's return, unless the taxpayers are related, the taxpayers' interest in the information is not adverse to one another, and disclosure is not prohibited by the taxpayer. If related taxpayers provide conflicting information to a return preparer, the taxpayers' interest in the information may be adverse to one another. If this is the case for information relating to a return or claim for refund claiming the EIC, the return preparer may not disclose the conflicting information or use the information provided by one taxpayer on the return of the other taxpayer.”

Interesting that even though you suspect there is false information being provided, you still cannot violate the non-disclosure rules. And nothing is said about you conducting an independent investigation with third parties, such as the taxpayer’s employer.

The bottom line is, if you can’t get straight answers out of the taxpayer, you cannot do the return. Nothing more, nothing less. Without the taxpayer’s consent, calling the employer and possibly disclosing confidential information about your client is simply not allowed.

[ChEAr$]

Now for the rest of the story

You can now tell everyone here about the OP on the other board having subsequently added a post about how she's now getting a whole slew of those apparently fake W2's. IOW,
word got out that maybe this lady would do them.

IMNSHO, this surely merits notification to IRS CID.

[jainen]

all the people I disagree with

>>avoid it like the plague if the majority on there think as you have said<<

If I avoided all the people I disagree with, I would be a hermit!

It's the ATXers Community at www.atxinc.com. The first thread was several days ago called "W2's fake or good?" and I started a new one called "nobody agreed with me."

I told them the consensus here was that you can't or at least shouldn't call the employer. One of their members identified y'all and said I hadn't given you the problem the same way as the original post. That's true--I isolated the ethics question about calling the employer.

Another point I made is that calling the employer might not even work--it would be the worst thing to do if the payroll clerk was in on the scam. I think that's why the IRS just wants you to give them the info and let the professional investigators do the hard stuff.

[sea-tax]

Jainen not that i don't believe you but for sake of arguement could you tell us which forum your on having this discussion. Because I will want to avoid it like the plague if the majority on there think as you have said. Also I know you like to make up certain cases just to get the pot sturring. I like those posts just kinda having a boy cried wolf too many times kinda moment.

[Brad Imsdahl]

I went back to that other forum and asked the question again, and they all unanimously affirmed that it is the preparer's obligation to investigate the fraud. (Nobody can cite any authority for that opinion, however.)

Tax law has nothing to do with common sense. Tax ethics has nothing to do with common sense.

I cited a code section that clearly puts the tax preparer in danger of jail time for acting on common sense. The reason nobody on your other board can cite any authority for their opinion is because their opinion is based on common sense, not tax law.

[JON]

jainen

is right. Still do not understand if client (you should not have) hands you the W-2 and says he does not work there or he is using it to improve his return. My practice does not take walkins, but if he says it is not his, but has his social security number on it-I will give him the appropriate IRS telephone number. If I think the W-2 is wrong, why the ink is bad the numbers are wrong-I do not calculate those. If you are not comfortable with a client WHY do his work, but you do not call anyone-the client or former client can call all he wants.

[Black Bart]

Tell you what;

I went back to that other forum...and they all unanimously affirmed that it is the preparer's obligation to investigate...

I've never done it and I don't know what all is involved in a CID investigation, but it's a government function (which gives you an idea how tedious it could get) and I'll also bet on two things: (1) the people saying "do it" have never done it before (2) when they get finished with the probably-involved phone calls, discussions, paperwork, time, stress, thought, etc., I'll bet they very much regret having gotten into it over a "short form" and spending time equivalent to that in which they probably could have done a set of corporate books.

[Black Bart]

Irony

I hold this privacy law in just about the same regard as that controversial medical confidentiality law enacted a few years ago -- the one that wouldn't let the hospital tell you if your dad was still alive after a heart attack (who else/what crooks would be interested?)

[QUOTE=Brad Imsdahl
...PREPARERS OF RETURNS...shall be guilty of a misdemeanor, and, upon conviction thereof, shall be fined not more than $1,000, or imprisoned not more than 1 year, or both, together with the costs of prosecution...You just disclosed confidential information to this fake employer[/QUOTE]

How richly ironic is this situation. Crooks are ripping off the system, IRS wants us to "do your duty" and turn them in, but there's a distinct possibility that we could get a fine and jail time if not done "just so." Meanwhile, the "W-2 faker" very likely gets off because of political correctness. Thanks, but no thanks.

[jainen]

wasting time with a liar

Thank you all for your wisdom. I went back to that other forum and asked the question again, and they all unanimously affirmed that it is the preparer's obligation to investigate the fraud. (Nobody can cite any authority for that opinion, however.)

The consensus on this board seems to be that it might be nice IF the client agrees, by why bother wasting time with a liar?