new client but not for long

[Bucky]

Get a new client. Outside sales. Had him drop off last years tax return and this years information. Find out he took private schooling for his kids in the tune of $15000 as charitable contributions ( Catholic School) . Also took a couple thousand as personal property tax on sch A (Ohio we don't have except for big business) and a few other questionable items. My feeling is say goodby now. To many items wrong for him to plead ignorance. He did self prepared turbo tax last year. What say you?
I think the IRs should audit all long form turbo tax returns. That might give them enough money to give us rebates without borrowing or printing new money.

Bucky

[S T]

Dont you just

Don't you just "cringe" when these type of clients approach you. I have walked out of several appointments over the years, when they have already calculated their taxes on Turbo Tax and then want to argue with you about the deductions and the diffrences.

Why oh why did they contact us in the first place!

I would guess you will just have to point out to him the errors or question items on his self prepared return, and then depending on those answers advise him that you will not be able to enter those deductions on his tax return and the reason why. And then let him know that he is at risk for a potential "audit for 2006.

On one side, it will cost you time, however, on the other side you might gain a very loyal tax client. One never knows!

An IRS auditor during an audit several years back, made a comment that they just totally enjoy auditing self prepared returns done on Turbo Tax, it is almost a given that there is always additional taxes that will be due.

Sandy

[erchess]

Devil's Advocate Here

What I am really struggling here with is that I don't remember the last time a client gave me, with last year's self prepared return, anything that would explain the numbers on it. I have trouble getting them to keep the returns and trying to get them to keep, let alone give me, the underlying records, continually has my head making a thud on the desk.

I also have clients who successfully make money in endeavors that I associate with normal or above intelligence but have none the less convinced me that their understanding of taxes is sufficient to cause errors such as you have encountered. I would explain to him what is wrong and offer to both amend last year's and do this year's correctly. There is a reason he came to you instead of using Turbotax again and that reason could have him open to the truth.

And finally, could the Taxes on Sch A be something that is deductible but belongs on a different line such as foreign taxes or State Income Tax withheld or paid as estimates? And do you know that his kids attend the Catholic School, that they are not on a free ride scholarship, and that he did not in fact make a donation to the school? My point is that I was in college with people who would not have been admitted let alone given as much in grants as they got if their parents had not been significant donors to the institution. Private schools do that starting with preschool.

[myerstaxes]

I have Represented Turbo Tax Clients

I have represented Turbo Tax clients, and at times it is laughable what they think they can deduct on their returns...There are times that I have to tell them that they have an indefenseable position.
But, I agree, if you have a sit down with this new client and explain to him what he can and cannot do and of course get his story about the questionable items...You may have a loyal client for a long while along with some referrals...

[Bees Knees]

I agree that when someone who normally is a do-it-yourselfer finally goes to a professional to have it done, they are doing it because they want it done right.

Nobody wants to have to pay extra tax on a previous year return they think is now history. But he might appreciate it that you have a solution that will make last year and this year right, even though it will cost extra money.

[Bonnie]

I have had clients tell me that the catholic church has told them they can deduct the tuition. Something about the church requiring them to give to the church and it being used for the tuition. This may not be the case with your client but a possibility. I have never done a return for someone under these circumstances but I have had people tell me this. I don't know if it is like this with all catholic churches or if they all have their own policy. You might ask why he felt it was deductible and may be surprised at his answer.

Bonnie

[Bees Knees]

The church can say anything they want...they do not enforce tax law.

The law is clear. Any benefit you receive in exchange for a charitable contribution reduces your charitable contribution.

If you give the church $3,000, and you get $2,700 worth of education, you can deduct $300 as a charitable contribution.

[BP.]

And do you know that his kids attend the Catholic School, that they are not on a free ride scholarship, and that he did not in fact make a donation to the school? Private schools do that starting with preschool.

Specifically not allowed.
Under Contributions section of Pub. 17, p. 158 "Contributions You Cannot Deduct"
"Contributions From Which You Benefit"
"Tuition, or amounts you pay instead of tuition, even if you pay them for children to attend parochial schools . . . even if it is designated as a "donation."

[Jesse]

....... And do you know that his kids attend the Catholic School, that they are not on a free ride scholarship, and that he did not in fact make a donation to the school? My point is that I was in college with people who would not have been admitted let alone given as much in grants as they got if their parents had not been significant donors to the institution. Private schools do that starting with preschool.

That is just wrong. The school better have a better reason than a free scholarship because parents donate so much, or why would anyone be paying tuition, wouldn't they all be making donations? Wasn't there an actor or polititian that did this exact same thing and it was disallowed? Tuition is tuition, contributions are contributions!

Specifically not allowed.
Under Contributions section of Pub. 17, p. 158 "Contributions You Cannot Deduct"
"Contributions From Which You Benefit"
"Tuition, or amounts you pay instead of tuition, even if you pay them for children to attend parochial schools . . . even if it is designated as a "donation."

That sounds more like it.

[BOB W]

I have run across simular situation and when I explain it to the new client they are willing to do the current return as it shoud be.. If not I send them packing..................and I first review a new client's return, tell them the problems and give them a chance to go away before I start///////////

[erchess]

All I know is

that if the charity gives him a receipt for x dollars and states on the receipt that he got nothing or nothing but intangible religious benefits in return for his contribution, I am going to deduct the contribution on Sch A and not ask any more questions. That receipt protects me and my client and if necessary the IRS can have a court fight with the charity. I realize that if the charity loses the deduction will be lost and the client will need to pay additional tax and interest but there should be no penalty for the client or me because it was reasonable for us to rely on the charity to guide us.

And by the way there is always a reason a school can get by with giving a scholarship to a particular student if it wants to. The student could play a sport or an instrument or be a member of some group that is under represented demographically at the school or just be exceptionally bright or well prepared for the next level of school.

[ChEAr$]

Well, it's like this

that if the charity gives him a receipt for x dollars and states on the receipt that he got nothing or nothing but intangible religious benefits in return for his contribution, I am going to deduct the contribution on Sch A and not ask any more questions. That receipt protects me and my client and if necessary the IRS can have a court fight with the charity. I realize that if the charity loses the deduction will be lost and the client will need to pay additional tax and interest but there should be no penalty for the client or me because it was reasonable for us to rely on the charity to guide us.

And by the way there is always a reason a school can get by with giving a scholarship to a particular student if it wants to. The student could play a sport or an instrument or be a member of some group that is under represented demographically at the school or just be exceptionally bright or well prepared for the next level of school.

at least for those of us (EA's etc) who are under the strictures of circular 230.

We can't ignore something like a Catholic church receipt of 15,000$ when we have reason
to suspect that it might actually be in lieu of tuition. We are bound to ask probing questions.
And to look client straight in the eye when asking, too.

[newbie]

that if the charity gives him a receipt for x dollars and states on the receipt that he got nothing or nothing but intangible religious benefits in return for his contribution, I am going to deduct the contribution on Sch A and not ask any more questions. That receipt protects me and my client and if necessary the IRS can have a court fight with the charity. I realize that if the charity loses the deduction will be lost and the client will need to pay additional tax and interest but there should be no penalty for the client or me because it was reasonable for us to rely on the charity to guide us.

And by the way there is always a reason a school can get by with giving a scholarship to a particular student if it wants to. The student could play a sport or an instrument or be a member of some group that is under represented demographically at the school or just be exceptionally bright or well prepared for the next level of school.

If the church really did give a receipt indicating nothing was given in exchange for donation your not going to have issues, but if the receipt says tuition I think your in trouble. I don't think the church would be stupid enough to jepordize its charitable status by giving receipts that are really for tuition marked as charitable contributions. And by the way there is no denying a school can give a scholarship because of a persons talent or ability or whatever else, but you don't have the flip side of someone trying to take a deduction in leu of the tuition not paid.

[oceanlovin'ea]

My neighbor's children when to Catholic school. I seem to remember her telling me that if they gave at least a certain amount to the church as contributions, they would receive a slightly reduced rate on the tuition. This was when they were in elementary school and that school was directly run by the church and on their property.
When in high school, the Catholic school was not directly connected to 1 church and I don't think that applied anymore.

Linda F

[taxxcpa]

Auditing

What I am really struggling here with is that I don't remember the last time a client gave me, with last year's self prepared return, anything that would explain the numbers on it. I have trouble getting them to keep the returns and trying to get them to keep, let alone give me, the underlying records, continually has my head making a thud on the desk.

I also have clients who successfully make money in endeavors that I associate with normal or above intelligence but have none the less convinced me that their understanding of taxes is sufficient to cause errors such as you have encountered. I would explain to him what is wrong and offer to both amend last year's and do this year's correctly. There is a reason he came to you instead of using Turbotax again and that reason could have him open to the truth.

And finally, could the Taxes on Sch A be something that is deductible but belongs on a different line such as foreign taxes or State Income Tax withheld or paid as estimates? And do you know that his kids attend the Catholic School, that they are not on a free ride scholarship, and that he did not in fact make a donation to the school? My point is that I was in college with people who would not have been admitted let alone given as much in grants as they got if their parents had not been significant donors to the institution. Private schools do that starting with preschool.

Reminds me of when I was a Gas Revenue auditor. Our goal was to find $ 1 million per year. I always said that if anyone thought they weren't coming up with enough findings, all they had to do is look at Gene B_____'s records and they were bound to find something.