Contributions-Preparer's Responsibility

[zeros]

For tax years beginning after 8/17/06, a charitable contribution deduction is not allowed for cash contributions, regardless of the amount, unless the donor maintains a record of the contribution. What is the preparer's responsibility in this situation? Do we need to review the cancelled checks or the written communication from the charity that includes the name of the charity, date of the contribution, and amoun of the contribution?

[solomon]

Advise client of the requirement and if client attests to meeting it then rely on the acceptance in good faith in 230.

[dsi]

Agree with Solomon. I for one do not desire to become an auditor for theIRS.

[BOB W]

Everyone should read the NEW Circular 230. It has been updated with new requirements for preparers. 2006 no longer applies. And yes, you now work for the IRS> without pay.

Here is someone's take on the changes:

http://www.edzollars.com/2007-09-26_Circular_230.pdf

[dsi]

Bob, I've read cir230, and yes because of e-filing we are doing the work of theIRS. However, we do not have to audit the clients documents. Sure we must use some common sense when the client provides us info, but we have always done that, no?

[zeros]

Take Our Word?

Will the IRS take our word as to whether we actually asked the client if he has the required documentation? Would it be better to have a signed statement attesting to the fact that he has the records?

[BOB W]

I plan on scanning in client signed statements, that I will write up as the return is being prepared, and making it part of my papers for that year for all verbal deductions. The same for all entertainment and auto expenses, as we are required to verify those documents.

[BOB W]

Bob, I've read cir230, and yes because of e-filing we are doing the work of theIRS. However, we do not have to audit the clients documents. Sure we must use some common sense when the client provides us info, but we have always done that, no?

Dave you are correct, we have always done that. But in light of this crackdown, I'm not taking any chances going forward. My income (right to practice) is more important. My motto will be "document> document>document"

Circular 230 needs to be read several times or make sure you take a recent Ethics class. Reading it once may not give you the full jest of all the ramifications.


Quote: "The sky is falling" Who was that Chicken Little? >>> I know I'm being paranoid

[Luis Mopeo]

Soap Box Alert

However, we do not have to audit the clients documents. Sure we must use some common sense when the client provides us info, but we have always done that, no?

We have become de facto auditors. If a client comes in and lies to you about EIC eligibility, you have "due diligence" penalties hanging over your head to audit the client before the return is prepared.

The standard for pushing the envelope on behalf of a client used to be the "realistic possibility" standard (one in three would agree), and it's about to be the "more likely than not" standard. In other words, if you take a position on a tax return that 49% of tax professionals would agree with, you're in violation of 230 ethics rules.

Take the Uslu case (TTB page 4-11). A taxpayer had bad credit, couldn't buy a house, his brother bought the house, and the taxpayer occupied and made all the mortgage payments. Certaily before the Uslu case came out, I'll bet my bottom dollar that the number of tax professionals who would tell their client to take the interest and taxes deduction with no ownership and no liability to the mortgage company would be a small minority, nowhere near even the 1 in 3 test. So, the preparer who took that position on behalf of his client was 100% correct in terms of law as confirmed by Tax Court, but was also 100% in violation of Circular 230 for taking an unreasonable position.

Now we can't even take 100% legitimate positions without being in fear of sanction. So much for our ability to advocate in our clients' best interests.

The relationship between the IRS and a taxpayer is adversarial, but fewer and fewer tax professionals look at it that way. Many approach representation as doing everything possible to make a revenue agent happy. I cringe when I hear tax professionals tell clients "You can't take that deduction, an auditor would throw it out." Yes, that approach is working for the government. You should prepare returns based on your knowledge of tax law and your client's risk tolerance, not based on what some unknown auditor might or might not like.

You can bet that the IRS looks at the relationship with taxpayers as adversarial, just like a DA looks at prosecuting a defendant as adversarial. Defense attorneys don't conduct the defense based on what they think the prosecution would like. Tax professionals shouldn't do that either.

We have been turned into de facto government agents, and our responsibilities to act in the interests of the other side in this adversarial relationship are increasing all the time. I don't know what to do about it, but we should at least recognize the situation.

[dsi]

We have been turned into de facto government agents, and our responsibilities to act in the interests of the other side in this adversarial relationship are increasing all the time. I don't know what to do about it, but we should at least recognize the situation.

I believe many of us do understand the situation we've been put in, and like you I don't know what to do about it either. I do feel the frustration of it all, and as you've witnessed on another post, it manifests itself in ways I don't like. I can easily embarass myself by saying things that don't really express my true feelings, just my frustration.

[Jiggers]

Verifying records

I plan on scanning in client signed statements, that I will write up as the return is being prepared, and making it part of my papers for that year for all verbal deductions. The same for all entertainment and auto expenses, as we are required to verify those documents.

Are you sure about verifying documents such as entertainment and auto expenses? Review all receipts for entertainment to be sure they contain the who, what, where, time, purpose?
Review the detailed travel log, that 99.999999% do not have?

My engagement letter states the following: "Under the Internal Revenue Code, taxpayers are required to maintain records supporting their return, including receipts and canceled checks for all deductible expenditures. You will be responsible for maintaining all necessary tax records and for the accuracy and completeness of the information submitted to me in connection with the preparation of the above-described return. This includes travel and entertainment records as well as vehicle expenses and proof of business use. By signing this letter you are certifying that you have reported all of your income."

I stand by this and they then sign under the following: "I (We) have reviewed the above engagement letter and agree to the terms and conditions set forth. Any information that I (we) have submitted for the sole purpose of preparing my (our) tax return(s) can be substantiated by receipts, canceled checks or other documents. I (We) have reported all of my (our) taxable income. This information is true, correct and complete to the best of my (our) knowledge.”

[BOB W]

Are you sure about verifying documents such as entertainment and auto expenses? Review all receipts for entertainment to be sure they contain the who, what, where, time, purpose?
Review the detailed travel log, that 99.999999% do not have?

At the Seminar, they said you must see the documents and verify. I'll re-read 230 for varification of what I was told at the Seminar.

[Jiggers]

Bob, what seminar?

At the Seminar, they said you must see the documents and verify. I'll re-read 230 for varification of what I was told at the Seminar.

Bob, what seminar? Just curious.

Thanks for the heads up, but I question the ability to be able to check everything.

NSTP just put out a sample client letter that referenced the new Circular 230 regulations: "The new regulations contained in ... Circular 230...require tax professionals to prepare tax returns on a new 'reasonable basis' standard, meaning that the return is more likely than not prepared accordingly with Internal Revenue Service regulations and law. ....however, you take note that I may require more detail regarding items of income or expense or I may ask additional questions in order to meet the requirements of this standard."

I intend to incorporate similar wording in my year end tax letter and revise the wording in my engagement letter.

If checking/asking takes more time during the interview, then I guess my fee goes up to cover this.

[BOB W]

Are you sure about verifying documents such as entertainment and auto expenses? Review all receipts for entertainment to be sure they contain the who, what, where, time, purpose?
Review the detailed travel log, that 99.999999% do not have?

Jiggers> Here is the sponsor of the seminar: http://ns-nccpap.org/


Here is a segment of a letter written by NAEA to the IRS:

What if the taxpayer does not produce mileage logs? The paid preparer will submit a Form 8275-R (Regulation Disclosure Statement, enclosed). What if she does not produce receipts for entertainment expenses? The paid preparer will submit a Form 8275-R. IRS will be swimming in Forms 8275-R. This state of affairs neither enhances tax administration nor lowers taxpayer burden.

Here is the full letter:

http://www.naea.org/MemberPortal/Advocacy/Comments/letter_aug_6_2007.htm

[Jiggers]

Thanks, Bob

NAEA WebBoard has a detailed discussion of this issue and the 8275 form, which I am sure you have viewed!

I guess I will drown my files with paper work, even more than I have in the past.