Presentation on the Tax Return

[Maria]

Hello,

Something comes up again and I really appreciate your input.

After the tax season, another reviewer has come on board. I admire her for her knowledge and detailed-oriented spirit. However, I kind of disgree with a lot of practices that she has been carried on for more than 20 years. She would spent lots of hours reviewing each return, for example, she compares each number on client's P & L to our tax input, she changes presentations, combinations etc, sometimes our client's lovely P & L is 3 to 4 pages long so she spends more time. Often, it takes 2 hours to make our those changes and the bottom line does not change at all.

The reason for her to do that is to avoid or minimize IRS letters. She gave me one example. One client has a joint interest in a rental property owed by many investors and our client received his P & L for the rental. We input all info into schedule E according to the P &L, we input one number into "mortgage interest," however, the IRS sent a letter saying there isn't any matching 1098. In this case, of course, it wouldn't be since there is only mortgage by many investors. In order to avoid that, from now on we put into "other interest."

Does it make sense? Was it a coincident?

So she is doing all of those changes to avoid letters. This would be all unbillable time.

Since I only work for one firm, I really would like to know how other firms do reviews.

Thanks a lot.

[Corduroy Frog]

My Support

Maria, as strange as it sounds, this lady has my support.

Is she a "purist?" No. There are other "purist" solutions, such as creating another entity for the rental activity, and also issuing a 1098 to one investor, with nominee 1098s to the others. All of these are cumbersome. But these purist solutions are serving no other purpose except to create useless information to placate the mold created by the IRS matching programs.

Your reviewer is simply short-circuiting the reporting around the problem. She is not creating or reducing real tax liability for anyone, nor is she mis-stating the expense.
Is she calling a steak a fish? Yes, but nothing more, and to no detriment even if audited.

You may receive responses from other much more knowledgeable tax professionals who disagree with me. But I believe this lady is using some "real world" experience, and I would be inclined to do the same thing. Reducing unbillable time should also be a worthy objective for any professional firm.

If she is mis-stating relevant facts, or altering tax liability, she crosses the line.

[taxmandan]

This would be all unbillable time.

The only problem with your scenario is the above statement, why is it unbillable time? That's soooo wrong, the client pays for the value of the service or they don't get the service.

[ChEAr$]

A bird in the hand

Maria, is worth two in the IRS bush.. ???? something like that.

Now in my "firm" there's no such thing as billable or unbillable time. Just me. (grin)

But if there's any way I can present an item to forestall an audit or a letter, I'll do it.
And that includes picking apart and reclassifying any expense called "miscellaneous" by the client.

In a large firm however, it takes time to respond to IRS letters, and so many time in those
cases those hours are unbillable time.

Pro act instead of having to react down the road. I LOVE my summer hours! (grin)

[OldJack]

Maybe one should look at why the information coming in takes so long to accurately process. Simple changes at the client level can sometimes make tax work much faster and accurate. If its not worth doing right its not worth doing.

[George Boutwell]

>>In order to avoid that, from now on we put into "other interest.". . . . This would be all unbillable time.<<

She must not have seen the memo on how a high amount of "other interest" raises the audit potential score by 50 points.

So, is it billable time when you respond to IRS notices?

[LawrenceGR]

Would this be

a partnership or some other entity? It seems to me if there is more than one owner of this rental property then it is a S-Corp or a partnership and each investor should be getting aa K-1.

[Maria]

Thanks

Hello everyone,

Even though I still not strongly agree with her, I feel better. Sometimes it is frastrated to see one whole page of review notes and it doesn't change tax outcome. I will make the changes as she noted. She has been in this firm for 26 years. She does this to everyone, including an EA who has the almost same years of experience (she was from another firm), another one who was from a big 4 accounting firm; and one CPA who was relatively new - 2 years of experience. They are all gone, but I don't think it was because of her.

By the way, in one conversation, she mentioned that she would fail all students if she is an accounting professor. I think it was a joke, but it meant something.

Thanks again.

[Maria]

No K-1s

No, there wasn't any K-1. Each investor owns a very small %, such as 3.63%, they get a P & L and balance sheet. It looks like a QB file. I was also wondering whey they didn't get a K-1.

Thanks.

[Maria]

The Rental

Talking about the rental, in one P & L, it has closing cost of $3,000, I wrote it off on the Schedule E. However, she has changed to depreciation shedule by locating the $3000 to building, land and various improvements etc. I was thinking to keep the depreciaiton schedule the same as the balance sheet. But I think she is right and I knew closing cost is part of basis.

Thanks.

[Bees Knees]

>>In order to avoid that, from now on we put into "other interest.". . . . This would be all unbillable time.<<

She must not have seen the memo on how a high amount of "other interest" raises the audit potential score by 50 points.

So, is it billable time when you respond to IRS notices?

Its called following the rules. Schedule E instructions for Line 12 says: "If the recipient was not a financial or you did not receive a Form 1098 from the recipient, report your deductible mortgage interest on line 13."

Billable time and audit risk are irrelevant. She was merely following the IRS Form instructions, as we all should.