filing 2003 1040 -- no tax owed

[Skate1968]

Thanks again

to Bees Knees and everyone who advised me on this. I'm not going to look at this client's 2003 situation any further.

After busy season i'll speak to her about tax year 2005. I really don't know what she'll tell me.

I might decide NOT to file for 2005. In which case I'll remind her that getting another accountant's opinion is one of her options. (and i don't mean 'go find some shady preparer who will do anything for a buck')

[Bees Knees]

You mentioned that you would have to “estimate her modest income” in order to file for these back years.

Line 22 of Form 8867 under the preparer’s Due Diligence Requirements asks the following question: “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.)”

My question to you is: How are you going to estimate her income? Did she keep any records? If not, how can you comply with your knowledge requirement?

The only way you can is to have her, not you, re-construct her income. You can’t coach her on the dollar amounts to put down, as you are obviously biased. It is your idea to do this, not hers. So keep your mouth shut and don’t give her any ideas on what income range will qualify for EIC. To the best of your knowledge, you really do not know what her income is, and neither does she. So you are at great risk of failing the knowledge requirement if IRS were to look at this, which they would on an amended return filed just before the statute of limitations runs out.

[Skate1968]

I decided that I should take a quick visit to the bar early in the day. But the bar was more crowded than i expected. I did not get a chance to speak privately with my client. I was not able to ask a single tax related question.

I saw people i knew, they bougt me a few beers and I wound up having the most excellent time! I stayed for several hours.

(so perhaps there's one additional big reason for me to avoid prepping for bartenders-- another reason entirely seperate from 'unreported tip income' )

Anyway I've known this woman for years. Both her employment history and personal history are troubled. (but i''ve never before had reason to ask any details) And while she was most probably wrong to NOT file a return it's probable that she would NOT have owed any tax. Yes, she was most probably trying to hide tip income but she most probably did NOT have anything to hide. This is all speculation on my part. And I imagine that it would be easy enough to find out the truth. So I'll post again after i find out more info.

Again thanks much to everyone who posted, Oxtrainer, Jack, rosieea, snaggle, janien, etc.

[Oxtrainer]

Earned income for Bartender

I tried to edit my first post this morning but it did not process somehow.
Any way I wanted to say that altho there are many who don;t know about EIC surely
bartenders should know about it and also bartenders can recieve sbstantial tips.
Tips might involve SE tax and you may be opening a can of worms. In any event
surely you have enough info now to make your own informed decision. Good luck
with it.

[Skate1968]

If she does get in an audit her "employer" could suffer the consequences as well. I'm sure she is not the only "employee" that is not on the payroll.

Thanks for responding, and yes I'm aware that this might cause trouble for her former employer(s). But I've witnessed other activity which could get her former employer in even bigger trouble. I don't think that I need be concerned with whatever risks her former employer takes. (she left on bad terms anyway)

So at least there is one aspect of this situation which doesn't cause me concern.

[Skate1968]

Thanks very much to everyone who responded.

If she does get in an audit her "employer" could suffer the consequences as well. I'm sure she is not the only "employee" that is not on the payroll.

I'm aware. But this would be her former employer -- a dive bar which became someplace to avoid. Some would be surprised that the place has not been shut down.

[Jiggers]

Elected SE for EIC

Jiggers I hate to say this, but I did the same thing back a few years ago before I found out it was illegal.
The IRS wants you to take all the deductions a person has as well as all the income, and not juggle it around so the client will get the EIC.

There was no jiggling of the books to do this. The farm actually has a loss, due to depreciation or Section 179, and the taxpayer wanted to elect to pay into SS, mainly to keep eligible for disability income, just in case.

The client was surprised at the refund, and so was I, the first time.

I researched this is OK.

[Jesse]

If she does get in an audit her "employer" could suffer the consequences as well. I'm sure she is not the only "employee" that is not on the payroll.

[Ken]

I have elected to have a client pay SE tax even though the farm showed a loss. Because of this they qualified for EIC, though small amount. Even after paying the elected amount for SE, they still netted $200 refund.

Jiggers I hate to say this, but I did the same thing back a few years ago before I found out it was illegal.
The IRS wants you to take all the deductions a person has as well as all the income, and not juggle it around so the client will get the EIC.

[rosieea]

>>Am I correct to think that the IRS wouldn't have a problem with this<<

I don't think so, and I don't think it will make you look very good either. The IRS will certainly have a problem with a non-filer suddenly claiming unrecorded income solely to get EIC. They might not do anything about it, but then again they might do plenty, such as coming after you as well as her.

I don't even think your client will appreciate it. Until the 1099 tripped her up she preferred to stay under the radar. Do you suppose that was because this bartender didn't know about income tax?

I agree wholeheartedly. EIC has been an area of abuse, the IRS is well aware of it, and EIC audits are not uncommon. If you do this, your client had better be able to prove the income.

[OldJack]

I agree with Jainen. This bartender has not filed because doing so and declaring all her actual income would have caused a tax due and she knows it. Filing for the current year is good but filing for a year that the statute of limitations is about to close could result in immediate audit. Also, if they did decide to audit it would be for all 3 years. Filing a 2003 tax return today keeps the statute of limitations open for audit another 3 years from the filing date. Not a good thing for someone that, as Jainen says, wants to fly below the radar.

[Jiggers]

Eic

I have elected to have a client pay SE tax even though the farm showed a loss. Because of this they qualified for EIC, though small amount. Even after paying the elected amount for SE, they still netted $200 refund.

[Oxtrainer]

Earned income for Bartender

I have had a number of clients mostly older, singled or widowed who have questioned
why they were getting back more money than they had paid in. Unlike those who
play the system some are appalled at free money. Most of these are receiving a very
small amount being without children. Most of these having worked all their lives are
without a clue. Incredilble but true.

[Skate1968]

Thanks for posting Janien

>>Am I correct to think that the IRS wouldn't have a problem with this<<

I don't think so, and I don't think it will make you look very good either.

I only meant that it would make me look good at the bar.

I certainly don't want throw a potential flag up to the IRS. But I know this woman and I think she legitimately qualifies for the credit.

Let me mull this over a bit.

[Skate1968]

Skateboard, it seems incredible, but the attitude of the Washington crowd including the IRS is that they absolutely LOVE giving out earned income credit.

It certainly seems that way! Look what's on the front page of the IRS website:

"IRS Has $2.2 Billion in Unclaimed Refunds
1.8 million people may lose potential refunds if they don't file their 2003 tax return by April 17.

...By failing to file a return, individuals stand to lose more than refunds of taxes withheld or paid during 2003. Many low-income workers may not have claimed the Earned Income Tax Credit (EITC). Although eligible taxpayers may get a refund when their EITC is more than what they owe in tax, those who file returns more than three years late would be able only to apply it toward the taxes they owe (if any). They would not be able to receive a refund if the credit exceeded their tax."