Response to Notice

[geekgirldany]

This relates to my previous post about a customer claiming to much on a sales tax deduction.


I've review the receipts and as I stated before the deduction is much more than what the receipts are showing. I need some feedback as to what to include in the letter and any additional information back to the auditor.

1. Should I include a POA and write/sign the letter or should I write the letter for the customer, have him review, and then sign.
The last letter of this type I believe I had the customer sign and then later I had to send a POA to talk to the auditor about the results.

2. Should I note the mistakes that brought about the originally deduction? I am hoping this will show it was mistakes made by the taxpayer and they were not trying to cheat.

I appreciate any feedback on this.
Thank you

[JohnH]

In many cases I will compose the letter and word it much in the manner the client would say things. I leave out code references and boilerplate parlance, preferring to simply put the client's words into a comprehensible letter, based on the facts provided by the client. The letter will contain only the client's signature. I'm especially inclined to do this when the outcome is fairly certain.

In your case, why can't the response simply be "I misunderstood the rules concerning how to calculate the sales tax deduction. Now that I have a better understanding of how this works, I am sure I won't make the same mistake on future returns. Please adjust my return to corrrect my error." (Those are the facts, aren't they?)

If IRS wants any more detail, they can write & ask for it. I think actually speaking with them is only an absolute last resort. If things don't go as expected after sending in this response, there's always time to step in with a POA in the second round. Incidentally, I don't charge any less for composing a letter in response to a CP-2000 that I would charge for a letter accompanied by a POA. All the time issues are about the same anyhow.

[joanmcq]

Is this an audit or a CP notice? Audit: get POA, send in the receipts (with a tape...I'm assuming they took the actual expenses deduction) and let them make the adjustment. Did you do the return? If it was a combination use of the tables + car/boat/RV etc purchase, it should be easy to either prove or disprove. I don't agree with them writing the letter or making it out as though they wrote it...the IRS really likes professional responses where the respondee knows what they are talking about. Lots of mistakes are 'honest errors'. That and 3 bucks will get you a coffee at starbucks. The 'honest error' won't get you out of the accuracy related penalty anymore.

And if you prepared the return, putting on a sales tax deduction large enough to generate an audit without backup is not good due diligence. If you are cleaning up someone else's mess, I apologize.

[geekgirldany]

Thank you both for answering. I will go ahead and compose a letter for the customer to sign and then see where it goes from there.

It is a mail audit and not a CP2000. They are wanting receipts and canceled checks to verify the amount deducted. I did prepare the return. I feel like I did my due diligence.

[joanmcq]

So you are going to let your client 'fall on their sword'? BTW, how much was the deduction?

[Jesse]

Is this an audit or a CP notice? Audit: get POA, send in the receipts (with a tape...I'm assuming they took the actual expenses deduction) and let them make the adjustment. Did you do the return? If it was a combination use of the tables + car/boat/RV etc purchase, it should be easy to either prove or disprove. I don't agree with them writing the letter or making it out as though they wrote it...the IRS really likes professional responses where the respondee knows what they are talking about. Lots of mistakes are 'honest errors'. That and 3 bucks will get you a coffee at starbucks. The 'honest error' won't get you out of the accuracy related penalty anymore.

And if you prepared the return, putting on a sales tax deduction large enough to generate an audit without backup is not good due diligence. If you are cleaning up someone else's mess, I apologize.

From past posts I conclude that you are more experienced and knowledgeable than I, so it is with all due respect that I say in my opinion you are being very harsh in your comments. It isn’t necessarily the tax preparer that created a mess, but maybe a taxpayer that provided inaccurate information. I don’t personally inspect all receipts for all deductions whether it is for charitable contributions, sales tax paid, union dues, etc…. If the taxpayer completes the organizer and has an amount filled in under sales tax for say a vehicle or building materials I wouldn’t necessarily request to see the actual receipts.

So you are going to let your client 'fall on their sword'? BTW, how much was the deduction?

What sword is there to fall on if the correct numbers are submitted and admission to a mistake is made? As I too have composed letters for the client to read, sign and submit, if this could be jeopardizing my clients position possibly I should reconsider and restrain from doing this in the future.

[JohnH]

Sometimes falling on one's sword is the most honorable and painless thing to do.

Honorable for the client and painless for the preparer.

[Black Bart]

It just depends on who you're sending it to.

...I too have composed letters for the client to read, sign and submit...

I've used both methods (I sign/client signs) and sometimes, when there's a need to elicit sympathy for a poor, unknowing taxpayer, their personal plea for mercy goes over better than one from a professional person.

[myerstaxes]

I would send

in the copies of receipts showing the actual sales taxes paid with an adding machine tape, explain in the response that they are enclosed and the total, and state that these are the only receipts that can be obtained...If the amount is close to what was claimed, I would ask that the entire amount be accepted (they do have a tolerance level to allow in full when the substantiation is close to what was claimed)...If not, then they will adjust the amount to what is verified...Stuff does happen, I hope that in this case it was the client who gave you the wrong numbers...If you error, I would definitely offer to pay the penalty and interest...No need to admit to the IRS any guilt, just stick with the facts...Here is the receipts, here is the total, and the chips will fall where they may...
Get the POA so that you can respond and converse with the IRS concerning this tax year...and the response should be from you since you were the preparer...Just my two cents (as a former Revenue Agent)...

[joanmcq]

I apologize for seeming harsh. The sales tax deduction seems to me to be pretty straightforward, but maybe it seems that way because since I am in an income tax state, the only clients I have that take it either bought a car or RV, or pay no or very little income tax, but still itemize. I have seen some really boneheaded DIY sales tax mistakes,though. For sales tax to trigger an audit, you have to claim a pretty large figure (I had one where they claimed the whole car, not the sales tax), so that is why I asked what the figure was. If someone came in telling me they paid $10k in sales tax, either they saved all their reciepts for the year (actual method, and unlikely unless they bought a whole bunch of expensive stuff) which I would inquire about, or bought a car/RV/boat, for which I'd need the figure to add to the table amount (and can discern if it is reasonable). I don't ask for every reciept either, but if a number given to me is out of line, I ask about it.

As far as having them fall on their swords, in my mind, either you are going to rep them or not. They are being audited. Who is the IRS going to call and talk to if they have questions? Do you want your clients corresponding with them?

[JohnH]

bingo!......

[geekgirldany]

Thank you guys for the responses.
Since Myers is a former rev. agent and thinks it would be better for me to prepare and sign the letter then I will. I wasn't sure who they would rather hear from first.

Like I said I tried my best to check the number at the time the tax return was prepared. Any number that would stand out like that I do. It seemed reasonable for the circumstances.

Thank you all again for taking the time to post. I appreciate it.

[JohnH]

I don't think you are letting your client fall on his own sword.
He's already arranged to do that all on his own by being too cheap to pay you to verify his math on such a large deduction. You gave him all the warnings you could, and now he wants you to run interference for him. IMO, he may as well get ready to take the plunge.

[joanmcq]

Y'see, my experience is that if the 'poor unknowing taxpayer' through ignorance made a mistake, and did not receive professional help when they needed it, and is still not consulting with a pro when they are still over their head, they get less sympathy. I can write up a sob story with the best of 'em, and make sure all the t's are crossed etc. Heck, I've gotten the only two OICs I've ever done through, and one was a former default. Major sobs. I think the auditors would rather know they are talking to someone who knows what they are talking about.

So this guy was a jerk, and now he gets to pay you to sort this out to your best ability. I hope you charge more per hour to run up the tape for an audit than for a return. And he gets hit by the blade, not you. Because if he starts talking, who knows who he will blame? Also, did he buy the materials and directly pay the taxes or did the contractor pay the sales tax? Make sure he was the end user and not the contractor.

[geekgirldany]

Edited For Privacy