I'm in a hole

[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.

[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.

[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.

[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.

[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.

[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

[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

[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?

[John of PA]

Out of hole yet?

Janien, I trust your out of your hole by now. Your really are among the top respected participants in this forum. You send out an SOS and the response is overwhelming. Thats great, thanks for all your contributions to this sight.

[jainen]

in the mail

>>I trust your out of your hole by now<<

Oh yes, thank you all. This has bucked me right up! To tell the truth, I've been a little depressed by a few things (especially that 24-year-old living in my garage) but I'm getting control of it again. I still have to clear some time this afternoon to get my organizers in the mail, however.

[John of PA]

Tough Times

and remember everyone, TOUGH TIMES DON'T LAST, TOUGH PEOPLE DO!

[Brad Imsdahl]

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.

And then what are you going to do if he says, "I have three Joe Blows working for me. Which one do you mean?"

[outwest]

My legal training is sparse but..

didn't the taxpayer give you a document supposedly prepared by this employer complete with name address and SSN?

If it's legit, no confidential information to share, the employer already has it. (though I will concede a question of who you talk to might not be in HR)

If not legit, the taxpayer has made an affirmation that it is issued by the employer. I think you would have a good defense. None the less I wouldn't like to go to court, even if I think the chances are good.

Rubber meets the road for me, I agree with SeaTax, I not going to waste my time.

Doug

[ChEAr$]

That's simple

And then what are you going to do if he says, "I have three Joe Blows working for me. Which one do you mean?"

I would say "the Joe Blow who is about 37 years old, brown eyes, red hair with a wife but
no children.

Don't have to divulge a social security number or address contained on the W2 in question at this point.
And, don't need to make a federal case out of this.

Remember, Brad, real fraud is suspected in the case under discussion.
After you've been in practice a while, you'll get a sense of this.

[Black Bart]

Now

...Remember, Brad...After you've been in practice a while, you'll get a sense of this.

that statement to a guy who literally "wrote the book" is pretty funny.