Contributions/Mileage Logs-Preparer's Duty

[zeros]

I prepared a sheet and will have the taxpayer sign to verify that they have adequate records to take these deductions. What is everybody else doing so we don't get a penalty?

[SunTaxMan]

Auto miles

I provide sheet(for each vehicle operated) for client to enter:
- odometer reading 1-1 and 12-31.
- miles traveled in pertinent categories, i.e., contribution, business, medical, commuting, ??
- answer to questions:
1. "Do you have records to document the miles claimed?" and
2. "Are those records written?"
- signature and date spaces.

This sheet has provision for subtracting 1-1 odometer from 12-31 AND adding the miles in each category - to make sure the totals agree!

On the basis of this page (which is designed to cover 6 years of figures, with provision in the heading of the page for purchase date, cost, make, model, sold date, sale/trade price), I track vehicle basis (depreciation component reduction). Separate sheet for leased vehicles.

If the client does not fill out this page prior to our meeting, we fill it out AT our meeting - if they fill it out they sign it, if I enter the answers to the questions, I note this on the page.

With each completed tax return, I give the sheet(s) back to them (along with a copy included within the return copy file), with current year's information entered, so they have it for next year's figures.

I have not looked, but if there is a way to upload files to this site, I will upload my Excel file. If not, I will be glad to share it with anyone who asks. Email address on my web site.

[veritas]

We use an access database

So I print out a auto mileage questionaire.

Did you take a dedcution for auto expense? - usually they answer this.

Do you have proof? - This causes a mental block and it goes down hill from here on.

Is it written? - blank

Then we ask for ending odometer reading and the sheet shows the opening.- Most of the time they answer this one, however you never know where on the form thay might put it.

We ask for business miles, commute miles and other personal miles. For help we give them the prior year information. Sometimes they answer this but it often does not equate to the opening and closing odometer reading. Much of the time they don't bother at all and I must send it to them several times and a select few this approach won't work at all. I must put the pen in their hand and point to the areas we need filled out. This entails explaining what commute means. Don't forget we have been doing this since 1984 or so with the same people. We use a fiscal year ending 10-31-XX because we need two to three months to get the information. When they get really stubborn I tell them they won't be getting their W2s until I get the information.

[veritas]

Audit

When we have an audit the examiner asks what is "AutoFr" (that's all the character space we get) in box 14 of the W2? I of course explain what it is. The auditor might reply "well that's unusual most people don't do that" and we move on to the next topic.

[Bees Knees]

I am going to hand everyone a 2008 Mileage & Expense Log Calendar from TTB

http://www.thetaxbook.com/newcalendar.asp

to everyone this year who wants to claim business mileage and say that unless you fill one of these out for me or something similar, I will have to say "no" to the question on your tax return that asks whether you have written records to support your deduction.

I will explain that new rules kicked in this year that require professional tax return preparers to verify whether or not you actually have written records.

Its a potential $1,000 penalty for us now. Sorry, but those are the rules.

[zeros]

Contributions?

I noticed that most of the responses is for the "business mileage". Is the answer for the "cash" donations going to be the same? I think the "cash" donations is going to be a more frequent problem. Will we have to see the voided checks?

[OtisMozzetti]

Don't need to verify

We don't need to see the voided checks, because according to ethics rules we aren't required to independently verify clients' statements. However, according to those same ethics rules we must make reasonable inquiries if what the client says appears to be incorrect, inconsistent, or incomplete. In other words, we must conduct a thorough interview.

With the cash contributions to charities, I would summon up my best bedside manner and explain to the client that the IRS has started to enforce its rule that there must be a written acknowledgement from the charity, or a bank record. Then I would ask whether the client has such records, and I must act in accordance with that answer. Interestingly, the state tax authority will allow us to enter a larger charitable deduction as an adjustment to the federal deduction amounts in those situations where the client does not have the new substantiation required for federal returns.

The trick is to keep it all in the spirit of keeping the client out of trouble with the IRS, at the same time you're trying to avoid excess unpaid wheel spinning, and at the same time as you're hoping that the client won't walk out without filing a return so that they can go home and tell lies with a self-prepared return (or go tell those lies to another tax preparer).

All of my clients were reminded of this upcoming rule last year, and all of them will be advised to get ready for the fact that the rule will apply again next year.

[DTS]

Your thoughts

I am taking this weekend to ready myself for mailings, etc. One of the items I do is a mileage worksheet that I am revising this year. I have included a signature line for t/p and spouse to sign. After looking at the printed version, I'm thinking this may or may not p/o the clients.

I think it'll be fine without the signatures and that doing so is over-kill.

Any thoughts?

Dennis

[fliszt]

I'm being more cautious

this year than previous years with the mileage records. Along with the "welcome cover letter" this year, I'm enclosing the following in a separate sheet along with the cover letter, and sheets for the tp to fill out: Would appreciate if anyone feels that I have stepped out of bounds on this.


IMPORTANT NOTICE:



Since you have deducted business mileage in the past I would like to let you know:

The IRS has advised all tax preparers that they may incur a $1,000 fine for non-compliance with the IRS Regs on mileage deduction. Because you have been deducting mileage, I will have your ending odometer reading from 2006, which is the beginning reading for 2007. I will then need your ending odometer reading on December 31, 2007 along with what portion of the total is personal, business, commuting, medical, and
charity. Then, for me to be in compliance, I must report on your tax return whether your mileage record is written or non-written.

I appreciate your understanding.

[DTS]

Larry

I am not putting much of a "forewarning" of anything, in anything I am sending to the clients. I feel I can explain this better over the phone or in person. I don't want them put off coming in or worse. I am not going to tell them anything about preparer penalties unless there is a problem in my dealings with them.

All I have in the draft of my letter is something to the effect of "This year, stricter rules are in place with regards to some items and I can explain those to you at our meeting and take steps to ensure everything will be reported in the proper way", or something of that sort. I'm still working on the wording right now.

I think all of us are going to much more cautious. That's not to say we haven't been in the past, but with the threat of hefty penalties looming, I am going to cover my uh-huh better! We can do this in a way the client will understand and, I believe, will appreciate.

Larry, do you think there is a need to have signatures on the sheets we are putting together? I don't think so, but would like your input on this.

Dennis

[BOB W]

Signatures can go either way, Yes or No, it may depend on the client. But when push comes to shove, you never know what a client will say. Maybe 75 out of a 100 clients will protect him/her- self when the penalties start flowing.

"I don't mind paying the taxes but those penalties are your fault for not protecting my interest> that is what I was paying you for", may become common office chatter in the future. My point is, even if you protect yourself from penalties the client will still look at you for what YOU ALLOWED TO HAPPEN. That's scary..................

I'm sure that if under audit it was determined that penalties are assessed to both the taxpayer and the tax preparer, the tax preparer may become morally liability for the client's penalty as well. Then what do we do??????

In the past we have a track record of paying some or all of the penalties because they were small, most of the time. I think that all has to stop.

I think we have to take a hard-nosed posistion on all issues in the return and be what Congress wants us to be, the "Auxiliary IRS Examination Agency" (AIEA). What can we otherwise do? I don't see that we have a choice and stay in this business.

Those new paper audits will not take written testimony. All we can do there is request a transfer to a local IRS office for a sit-down audit, and who knows where that will lead to, like opening up the whole return.

Boys and girls, our industry has changed and we are going to see major client schuffeling going on by March of 2008. Your phone will be ringing off the wall as those risky type clients start searching for those nieve preparers to do the their will.

Many of us have been reasonably tuff with clients' "mental wanderings" and we all have the type of client that wants "NO IRS PROBLEMS" and they tell you so. But the "Risk Taker" client HAS TO GO. We now must recognize him/her and make them squeel until the return is "Right". If they go, so be it. Just be sure you don't spend too much time with them before they run out the door an hour later<> leaving you unpaid for your time.

[zeros]

Schedule C-Evidence Written?

For 2007, can we safely say that if we have to mark "no" to the question, "Is it written," that it is simply "not deductible?"

[BOB W]

For 2007, can we safely say that if we have to mark "no" to the question, "Is it written," that it is simply "not deductible?"

I guess not since this is a "required" review item.................

[DTS]

Log

I don't think it has to be "written" to be deductible?? Can't one keep track on a small tape recorder and then just answer "no" with an explanation of how it's kept track of?

Dennis

[JG EA]

I have many times checked the "not written" box. It so far has not been questioned. If a client really drove those miles for business and takes a low estimate why should he not take the deduction.

Perhaps you are thinking that it is more likely than not that the IRS will not allow if the client goes to audit. But what about the oral testimony - it is still valid. I'm not going to change things much, so do you think I am living dangerously? I want to protect myself, but you know what there are so many things that we could be doing more to double check clients. We could be taken to task by not seeing charitable contributions. Am I going to start requiring they sign something about that? I'm not sure, I don't think so. I think my questions and their signature on the tax return is sufficient.

I still am going to follow the policy that I believe my clients unless they give me reason not to believe them - in that case I have them sign things that I write up for their particular situation. (Usually involving hobby vs. business).

Everyone is so scared it is making me scared. Maybe they should initial each and every line on the tax return with an entry, maybe we should act scared so they will be scared. Clients have said that doing taxes is like going to a dentist. If I went to my dentist and he had me sign before he did each cleaning, each filling, and told me about how he's going to get a fine if he doesn't do something, well, I still won't fix my teeth myself but I sure will consider whether he instills my confidence.

I don't think most people are out to get us. I don't even think the IRS is out to get us. I think reasonable precautions are necessary because everyone's memories are shot because of our stressful times. But, I am trying not to panic here.