Interesting client

[newtotaxbooks]

Had an interesting one yesterday. I'm not entirely sure it was a legitimate return or a test. Taxpayer supposedly is an employee of the IRS (had a w-2 from treasury). She comes in with her info for this year plus had copies of returns going back to 2002. 2002 and 2003 she had her return done by a CPA. 2004 and 2005 she did them herself on Turb Tax. Ok so I glance at her last couple of returns (the ones she did) and notice she has a sch E with no income and only an expense of $559 for auto's. I question her and she said she did have a rental, it was rented, but she figured the rent covered her mortgage so there was no sense putting the numbers in because they offset each other. So I look back at the returns the CPA did and sure enough there was the rental. No depreciation schedule showing basis but with a quick calculation the basis for depreciation is around $77,000 which is what she paid for the property(asked-no additions or major improvements to property). Question here- this more than likely is incorrect because of the land value not being deducted out. House originally placed in service in 1996. What to do about incorrect depreciation for something going on this length of time?

Next thing she tells me is she has a business-party in home thing. Does not want to claim the income because she knows she will have a loss and she is afraid to claim anything because she has never shown a profit and does not want the IRS to go back and change previous years returns.

Anyway, she is supposed to come back next week with some additional info so I can try to amend the ones she did on Turbo Tax and complete this years return correctly. Anyone think this was a test or do you think someone working for IRS would be this clueless? Anyone also have any ideas about the incorrect depreciation basis?

[Jiggers]

Interesting Client?

Works for the IRS? I would be ultra cautious.

I do returns for several IRS employees and they are very careful about their returns.

They do not want to deduct anything that just looks out of the ordinary. Each one has a small farm, but they really try to make a profit.

They could lose their job if they are audited (!!) and did something they shouldn't have done.

Your new client, I don't know about.

[taxmandan]

IRS testing you?

I doubt it's a test of you, she probably does not work in the tax area but rather in adminstrative office (HR, or receptionist) and has no clue about taxes. TheIRS is very strict about employees tax returns, she needs to get things straight before an RA finds out and her job is in jeopardy. Correcting depreciation errors requires a Form 3115 to change the accounting method. There is a Rev Proc. for fixing it, don't have the cite handy, sorry.