WebCD Update

[Brad Imsdahl]

This is just a note that there is a 4-18-2008 update for the WebCD posted on the 2007 WebCD updates page.

http://www.thetaxbook.com/updates/WebCD/TheTaxBook2007/WebCD_Updates_Page.htm

The email notification for this update will be sent sometime on Monday.

[Bees Knees]

An interesting tidbit from the latest update. Under Income Tax Return Preparer Penalties, it talks about ways we can avoid the failure to disclose penalty when the taxpayer is found to have understated his/her tax liability during an audit.

One way to avoid the penalty is if the taxpayer fills out our organizer. The update says: “For example, if the taxpayer brings a tax organizer to an appointment with a tax return preparer and the organizer reflects that the taxpayer made certain dollar amount of charitable contributions, the preparer may rely in good faith without verification the information furnished if it does not appear to be incorrect or incomplete. The preparer, however, must still inquire about the existence of documentation in accordance with the appropriate reporting and substantiation requirements that apply to charitable contributions.”

What that says to me is, if the client DOES NOT fill out an organizer for us, we have extra responsibilities as to deductions the client wishes to claim. If, for example, the client tells us he gave X dollars for charity this year, we need to obtain a copy of the list of charitable contributions he actually gave. Just telling us a number is not good enough to avoid the preparer penalty if the client is ever audited and has some or all of his contributions disallowed.

[erchess]

This does not make any sense to me

What I am hearing is that if the client fills out an organizer for me it may be sufficient if he gives me one figure for his total charitable contributions and it is presumably also ok if he does likewise for his other deductions and credits BUT that if he tries to give me his piece of paper with the same information or tries to tell me the same information orally then I need to ask to see and I suppose photocopy additional records. Is that really what the IRS is saying?

[Bees Knees]

Well I think if the client were to provide us with a piece of paper with the same detail as what would be provided on an organizer, that would be the same thing. I think what the IRS is saying is orally providing a number is not enough, or writing a number down on scratch notes is not enough. At least an organizer is going to provide more detail than scratch notes.

[Snaggletooth]

Mileage

I regard mileage deductions as a similar problem. There was a time long ago when I would accept a client's estimate, or percentage.

Snag: How many miles did you drive for business?
Client: Oh, I bought the car in January and now it has 25,000 miles.
Snag: How many miles did you drive for business?
Client: Probably 80% of the miles were for business.
Snag: OK, looks like we can deduct mileage rate on 20,000 miles.

This used to be good enough. I started in the days before the question "Do you have evidence to support your deduction?"

Nowadays he has to keep a log. If he doesn't, I will accept an estimate if he is willing to sit down with me and constitute a log. This might take an hour of my billing time. For example, if he is a basketball coach and is willing to sit down and outline the towns for his "away" games and scrimmages. This, in effect, becomes a "log" and enables me to answer the "written deduction" question in the affirmative. Trouble is, he might be able to constitute 2500 miles this way, and his "real" mileage might be closer to 5-6K.

Another unacceptable answer that clients try to convince me so they won't have to do any work or make any representation:

"Probably 'bout the same as last year. Look and see how many miles you took last year and take the same."

Hardly a "bottoms-up" development of mileage. Unacceptable to IRS, Cir. 230, and impossible to convince an auditor that this client just "happened" to incur the same exact mileage 2-3 years in a row.