Our CPA misled us

[Bees Knees]

Because of all the various explanations & answers being supplied, could this original post be a hoax - Joke?
Just wondering.

Maybe – could be OldJack trying to stir things up a bit.

[ChEAr$]

That particular penalty

Hubby tells me that the penalties have already been estimated in the total amount owed. He says CPA included this in his calculations... therefore we are paying them now. Does that sound incorrect somehow? Should hubby expect a letter from IRS?

is called "underpayment" penalty, and stems from not having paid in enough during the year via estimated payments, a situation to which I alluded earlier.

Now this "penalty" is not the fault of the CPA for sure, and is in reality a form of "interest"
(though not officially that) which is paid for use of the money not remitted in time to the
U S Treasury.

Most all accountants prepare the next year's estimates based on the tax from the preceding year. A few, like myself, will revise estimates quarterly, ensuring that client
pays 100% by January 15th so that theoretically, no added amounts due, nor any
refund, a sort of "tax utopia".

So then, at the IRS interest rate, about 7% or so, calculated on what I call the
"unpaid balance", it's really a cheap way to borrow money. Think about it.

[JohnH]

It's possible, but

I don't think it's a hoax. Of course, I've been fooled before. The original question and the follow-ups from Breckgirl5 seem to have a ring of authenticity (although the screen name is also the humorous moniker a certain radio personality applies to a Democratic presidential candidate - probably a coincidence).

In any event, I've found this an interesting discussion on several levels, especially with respect to how our explanations to a client can be misinterpreted in the retelling. It's also a reminder that we can get into real trouble and maybe risk losing a client by giving out hasty estimates or working off incomplete information..

[breckgirl5]

Because of all the various explanations & answers being supplied, could this original post be a hoax - Joke?
Just wondering.

I assure you this is not a hoax. It's my life, unfortunately.

The reason some of my answers might seem inconsistent is that I'm not managing the books for my husband's business. I'm not a bookkeeper. I don't know with 100% certainty what he gave the CPA or how he organized his information. I also do not know accounting lingo/acronyms/terms. I'm telling you what I know.

I guess I was naive to think that a CPA would tell a client that he had overpaid by $700, only to turn around and tell that same client 3 months later that he actually OWES much more. My original post was merely to ascertain if this was "normal." I've personally never run a business or worked with CPAs. I have no idea how it works.

[Uncle Sam]

CPA Misleading You

Let me explain a couple of things that in part have been discussed on this thread by other posters.
While you may have prepared the Quickbooks information to the best of your ability, there are a number of "red flags" that normally crop up that preparers MUST be concerned with.
One red flag is, that checks written and posted to business expenses, are disguised personal living expenses that have no relationship to the business activity. This could include personal charge accounts for auto expenses and other items that have mixed personal/business use, as well as posting loan payments to an expense rather than reducing an existing liability that does not effect profit/loss. These errors would make taxable profits lower than they should be.
So - even if your accountant HAD the information you gave him by March 15th (corporation filing date), doesn't necessarily mean that he's fully in agreement with what's been prepared, and adjustments need to be made afterwards to properly prepare the tax return.
This is an ongoing problem in the profession where clients claim that they've done all the work - but may not have done it properly, and subsequently the accountant has to spend time correcting the errors (innocent as they may be) in order to make the information be correct.

[Joe Btfsplk]

CPA errir

Hello everyone,

I am beside myself with confusion/anger/depression right now and I need help.

For background, husband and I file separetly because he owes back taxes from many years ago. We keep our finances separate and our assets are all in my name.

Up until Q4 2006, my hubby was a realtor with an S Corp. At the end of the year, he exited real estate due to an underperforming market in our area.

We submitted all of his financials to a CPA back in Feb/March. Come April, he called us and said that hubby was due a REFUND from the IRS and state. He said he would file an extension and get the paperwork done by August.

We were naturally thrilled about the refund, and the money we were saving for taxes was then spent on a vacation!

Well, hubby went to pick up his tax forms from the accountant last week and -- low and behold -- he OWES about $2,500!!!!!!!!!!!!!!! (IRS and State combined.)

I am deeply puzzled by this. How could this guy miscalculate SO badly? On top of everythign else, I thought taxpayers were supposed to remit extimated payments with an extension form. Our accountant did not do this. Will hubby now be penalized for not sending $$ with the extension?

Also, can we pay these taxes with a credit card?

We are talking with the accountant tomorrow morning at 8am sharp. I want to have some opinions before then. Thanks in advance for any guidance you can give us. I'm in shock.

Actually the CPA seems to have done one thing right--he rechecked the return and found the error. He probably should have let you know right away that his earlier statement that you would get a refund was wrong.

You would pay less penalty if money had been sent with the extension request, but how was the accountant to know what you would owe until he did the return?

If he filed the extension in April, and told you a refund was due, he must have had the return completed aside from rechecking it, so he should have found the error within a week or two after getting the extension. However there may be extenuating circumstances. It would have been better if he had kept quiet about the refund until he had done everything he intended to do and was sure about it.

[breckgirl5]

Thanks, Uncle, that was helpful. Many of the comments have been very helpful.

[sea-tax]

Wow I am truly amazed that all this discussion is taking place for a mere $3200 dollars. I don't mean to sound cavalier , but whats done is done and by your own account the CPA prepared the return correctly. There has be no mention of the returns being prepared incorrectly.
breckgirl5 my advice is pay the CPA his money, mention that you were shocked about the change and disappointed about the penalty. If he offers to pay great if not don't do business with him again.
CPA's are like anyone else they aren't perfect they make mistakes, just as each and everyone of us has.

[breckgirl5]

Wow I am truly amazed that all this discussion is taking place for a mere $3200 dollars.

To some of us, that's a lot of money. It's going to wipe out a significant portion of my emergency fund, and will take a while to re-save it.

It's all relative and a matter of income level/perspective. Realtors are not always rich. Many are barely scraping by.

[Gretel]

To some of us, that's a lot of money. It's going to wipe out a significant portion of my emergency fund, and will take a while to re-save it.

It's all relative and a matter of income level/perspective. Realtors are not always rich. Many are barely scraping by.

Same is true for accountants/tax preparers and, I bet, a lot of other professions. Can we close this thread now?

[John of PA]

Before we close

Interest post, before we close I just want to say, in general, that I have found when I take responsibility for my affairs, even if someone appears to be at fautlt, and don't blame others, I am more empowered, have more energy, and accomplish more.

[veritas]

I wonder if there

is a Realtor forum for us to post questions on? I have a couple of questions.

[John of PA]

Google it!!

Type Realtor Message Board in Google. I don't know of one personaly but Yahoo for sure has one.

[sea-tax]

is a Realtor forum for us to post questions on? I have a couple of questions.

Why not ask here , ya never know what some of us know. ( not exactly proper english but you get the point).

[Maria]

Our Firm Pays the Penalties

Hello,

We always asks our client to submits payments with the extension. The extension payments cover both 06 tax due and 07 first installments. If after the return is done, there are late payment penalties, we always pay.

We have clients that I work closely. One client always is very ancious about her estimates. I always felt very pressure to answer her questions. One time I had to say "it won't be much," but when I did the calcuation, it ends up that she owes very large amounts since her income triple!. Although no damage (it was before 4/15), she was very upset. I learned a lesson that I should be very caucious.

Thanks.