Our CPA misled us

[Bees Knees]

The lesson that needs to be learned here is a lesson for us. Taxpayers will believe and think what they want to, despite our attempts to explain what is wrong here.

The lesson is, NEVER give out an estimate of a tax refund or balance due for your business clients. Period. If you do a thorough enough job that you can safely tell a business client he is getting a refund, then you probably did enough work to complete the return and the only reason you put him on extension is because your printer ran out of paper.

How can you possibly give an accurate estimate for an S corporation client prior to balancing the books? You can’t. This CPA is a fault. Not because he gave a wrong estimate. But because he gave ANY estimate prior to the completion of a balanced set of books.

[Corduroy Frog]

Answer One Question

BreckGirl, I've wanted to ask a question but decided to let this banter fly back and forth for awhile. The question is just one of many disconnects which tell us "something's wrong with this picture."

So your husband is told he has a refund, even filing married and separate. (Irrelevant what you do with it - it's your money, foolish or wise and benevolent, whatever. Doesn't matter)

Why does he file separate? You tell us from the start that he owes back taxes. However, if he has a refund, surely someone (including the CPA) should know that the refund will be applied to back taxes, and therefore will not be forthcoming to finance any vacation.

My question is as follows: If anyone thought he had refund enough to cover these back taxes and finance a vacation, then why didn't you file joint? For most Americans, filing joint saves at least another $2000-$3000 or more versus filing separate. Married filing separate is the highest tax rate of all status.

The disconnect is that the very reason for filing separate was eliminated by the refund itself. And you must have known his purported refund was enough to pay back taxes or you wouldn't have relied on it to take a vacation.

Somewhere in this chain there is a broken link, big time. You may not be aware of it. It will be interesting to see how your meeting with the CPA turns out. Our suspicion is that he is really not that stupid, and there has been misinformation. Please update us after you have your meeting.

You have been beat up pretty bad for visiting us. We normally are not this hostile, and frankly, some of the harshest comments have come from otherwise cordial people. But none of us can put 2 plus 2 together, and we know from experience when gears are not meshing.

[joanmcq]

That's the way I took it too.

[KJ Judd]

I read it that the husband posted a S corp distribution as an expense. (So the flow of cash to "pay himself" was listed as an additional expense, not a reduction of the retained earnings.) This definitely would cause the issue here.

[WhiteOleander]

that he originally overlooked?
Maybe I am missing something here. If this was a disbursement for a business expense or a deduction on the Sched. A form 1040, wouldn't this reduce the tax instead of increasing it?

I took it to mean that the husband took out something that would generate a 1099R. If I am correct, it may have caused not only a higher tax liability, but also a 5329 penalty.

Just the way I read it.

[Bird Legs]

The CPA discovered a Disbursement

that he originally overlooked?
Maybe I am missing something here. If this was a disbursement for a business expense or a deduction on the Sched. A form 1040, wouldn't this reduce the tax instead of increasing it?

[JohnH]

This is an opportunity for you & the CPA

The $75 is peanuts for both you and the CPA. You should pay his full bill and then politely tell him you think he should cover the penalty & interest when you get the follow-up bill from IRS.

If he refuses, it's worth $75 for you to decide you don't need to do business with him again if you don't like his policies about accepting responsibility for his mistake (that might be useful info if you ever have a significant penalty in the future-like maybe $750). You have an opportunity to evaluate what type of businessperson you are dealing with - well worth a $75 investment to decide if this is someone you want to trust with your valuable financial dat in the future.

From his standpoint, it's an opportunity for him to invest $75 in client goodwill, since in most cases a smart CPA would gladly invest $75 to gain a NEW client. He has an opportunity here to invest $75 in retaining a client he already knows will speak frankly with him and he may be able to establish a long-lasting client relationship.

Bottom line is you will learn something about his business savy and he can let you know if he values your future business.

[BOB W]

Huh...............

"Apparently the issue was a dispersement that Hubby had entered into the spreadsheet of income & expneses. CPA did not see that and was going off the the W-2s only when he said hubby was getting a refund."

It would be interesting to know the condition of the information being provided, that a CPA would miss an income item. Or are you saying that he never looked at the spreadsheet???????? Or an expense got doubled up on the first (refund) calculation??????

Something that was not mentioned was Who was doing the 1120s. I assume the CPA. I would never do an 1120s from notes supplied from my client............

[Uncle Sam]

CPA Misled

I agree with DSI.
Pay the CPA his full bill. He spent the additional time explaining the discrepancy to you.
And I wish to point something else out.
Since you will be doing your husband's books on a software program-simply because you enter something into the system - doesn't mean that it's a proper business transaction for the business - something accountants usually don't discover until AFTER they've gone through the records adequately enough to be confident that the information is accurate. This is true especially of expenses - where a number of areas should be scrutinized and caution taken before accepting it as fact. That is what's required by professional ethics standards.

[DTS]

$75

Did the CPA make a mistake on the return? If so, discuss the $75 with him. I don't remember you mentioning the return was not true and accurate. If it was error-free, pay the guy his $75.

Seems the biggest error this guy did was open his mouth too soon. Not worth a $75 penalty!

Dennis

[dsi]

Breckgirl,

Pay the CPA his full invoice. Don't play games, that IMO is childs play. If he is reputable, he will cover the penalties that he is truly responsible for.

[Gary]

Injured Spouse

In the future, don't file MFS. File MFJ but file Form 8379, Injured Spose to prevent your refund from being taken.

[erchess]

Speed of Refund

Refunds often happen in two to three weeks or four to six weeks depending on when and how the return is filed. However, many refunds get held up because a person or the IRS computer has a question about the return or just because the return was return number whatever processed today. Think of it this way - filing a return is not like going to the bank to withdraw your money or like selling a stock on a stock exchange. It is more like expecting to receive interest on a a bond you have bought from a very financially shaky company or like expecting rent from a tenant with a history of late payments and of going to court to contest whether payments are really due. .

I certainly do think about what I will do with the money when my tax refund check comes. But I don't actually spend that money until it is in my checking account.

Don't feel bad for having failed to realize this. Our industry as a whole has a problem of clients whose unrealistic expectations come from watching the advertising of the store front firms that work mainly with the people who get the earned income credit and lead them to believe that getting a refund is like withdrawing money from a bank account.

[breckgirl5]

The result

You all asked for the results.

Hubby & I tried to 3-way call the CPA (he IS a CPA) today. As usual, he did not answer and we waited until early afternoon for him to call back. Hubby got the call.

Apparently the issue was a dispersement that Hubby had entered into the spreadsheet of income & expneses. CPA did not see that and was going off the the W-2s only when he said hubby was getting a refund.

So, yes, it's a classic case of miscommunication. Hubby is mad now, because he says CPA should have looked more closely. I would say they both bear some responsibility.

His penalty is about $75. I do plan to deduct this from the CPA's bill of $325.

To answer some of your questions about why hubby owes from years past... he was always self employed and never hired an accountant to help him. He was young and, well, stupid about taxes. April would come, and he had never saved enough money. He was a single dad and was pretty poor. He was just trying to eat. He comes from a family that never taught him about finanes. They are all pretty irresponsible.

Now that we are married (and he is actually in a salaried position for the first time) things will be better because I am handling all the books and bills. This will NOT happen again.

[breckgirl5]

three months to six months funds readily available for emergencies. Maybe slowing down on the retirement savings until you have enough set aside. Once that is done then start saving for the extras like vacations and other luxuries.

I do have about 4 month's salary set aside for savings. Now I have to dip into it to pay hub's taxes due (thanks to the CPA's mistake).

We only planned the trip AFTER we thought my tax return would cover it and hubby didn't owe. We were not going on vacation otherwise. I'd say that we definitely had our priorities in order on that front.