Discussion:Amazing, simply amazing...

I ask the client about it and they say it is for their business. I dig a little further and they show me their notes from last year. It seems all their preparer did was take some business expenses and a whole bunch of personal expenses and load them onto the Schedule C. I ask how there return preparation was done in the past. They explain the preparer simply had them sit down, asked a few questions, looked at their documentation and was done in 15 minutes. I asked if the preparer went over the return with them. They said no, they were told to sign, pay the invoice, went on their way and the next client walked in the door.

I told them they have to contact the previous preparer and ask for an explanation and request they amend the returns. If the previous preparer won't amend the returns, I told the client I will do it because they need to amend.

Amazing, simply amazing....

Tom

They told this client they were "certified", but they aren't registered as a CPA, so that rules that out. So, I guess whatever "certified" means.

Tom

Tom

I have one client right now with a similar issue. He has a full-time job working for a major University. However, his return also showed a Schedule C for a dental consulting business with losses of $30,000 per year for three consecutive years. He was audited for all three and of course, all the losses were disallowed. Somehow, the Service did not hit him with negligence or fraud penalties for the phony business. Quite frankly, they could have and should have referred the case to Criminal Investigation and the preparer should have been hit by penalties and investigated for criminal acts as well.

Of course, my client told me he had no knowledge of what was on his return. He just signed what was given to him. BTW, I don't think it was a coincidence that both the client and the preparer are from the same home country in Europe. Obviously once something like this occurs you take a very different view of everything and anything this type of client tells you.

Additionally, California preparers including this one is licensed.

§ 10.30 Solicitation.

(a) Advertising and solicitation restrictions.

Enrolled agents, in describing their professional designation, may not utilize the term of art "certified" or imply an employer/employee relationship with the Internal Revenue Service.

I have given that serious thought. I've never done it and as a CPA I am not sure what my ethical obligations are in a situation like this one. I need to look into it. But I know it's the right thing to do and should be done. I don't mean to sound wishy-washy, but since I've never done it before, I don't know what really to do.

Tom

Personally, I would let the client know that what the preparer did was illegal and that by amending the returns, the client cleared himself of wrongdoing. I would also talk to CI and TIGTA and if all appeared OK, ask the client to speak to TIGTA. 99.9% of the time, this is the only way that bad preparers get caught.

IRS is not interested in going after taxpayers that come clean. They will go after bad preparers IF and when we present them with a good case.

Thanks for sharing the information. As I said, it's unchartered waters for me. I've never seen a case this bad.

I think my client wants to do the right thing as she is called and said she is sending some clients she referred to this person my way. She also left shaken about our conversation.

Tom

I know I can do them, but I proposed to do them originally but the client was the one who insisted on contacting the previous preparer, so I told them to contact the preparer to discuss the returns. I didn't make that clear earlier. Sorry about that.

In the end, I probably will wind up doing them I suspect.

Tom

On the preparer, after getting an education on here about how bad it can be: yes, I'd turn him in. I seriously doubt the client cooked this up.

True enough. Obviously I condensed the conversation. I told the client originally they should consider amending the return based on the findings. They wanted to go back to the original preparer at that point to get the full picture of what the preparer had done.

On the bright side, they left their information here with me to do this year's return.

Tom

Then, and only then, will we be able to weed out the unscrupulous preparers. By reporting the baed preparers - not the taxpayers - IRS can pull in for audit those clients done by that preparer - and would rake in additional revenues instead of wasting time and resources on unproductive audits. Why not have the IRS use us legit preparers for their benefit?

If you are speaking of client substantiation: we have enough trouble on listed property as it is! The real world has to intrude somewhere and I'm for reasonableness. Making up numbers of course is nowhere near reasonable. And what happens when you get to charitable contributions nowdays? It's hard to just accept a number now, even though we're technically permitted to do so if it looks in the ordinary. I would not want to go overboard and turn us into auditors.

The musician lives near me but also has about 30% of his income from GA, where he admits it costs him nothing but the cost of driving and his mealas while there when he travels. He has friends there. When I look at the travel and meals I have the suspicion the preparer used the entire per diem rate for that city. I know this because his income from GA and the dates are similar this year. I am not about to spend my time in busy season trying to hook up with a CPA in GA to find out; I might ask the client to do so, but he is a bit miffed because I increased his taxes a good 35% this year.

I also note that last year, when this man has one 1099 from a NJ organization representing 1.5% of his gross, a NJ return was filed....ditto a NC return for one 1099.....in fact there were six states. That holds with the letter of the law, but I happen to know that the NJ firm that paid him uses a hall in PA for its recording!!!!!

TAO's example rises to the level of illegality, or so it seems at first glance......but how do we separate illegal from aggressive or lack of understanding of the law? We might find ourselves getting into Potter Stewart territory.

I think that Sec. 10.21 of Circ. 230 was drafted pretty well, if someone can post that Section here, it may be elucidating, if read carefully. P.S. D&T: you don't know above, if you knew, there would be no need to even think of calling an outsider. Besides that, when you do call outsiders, that is auditing, and that is most definitely not required, it's not prohitited, but it's certainly not required. If it was required, no one could get E&O.

This does not give an affirmative legal duty to review prior returns, open years etc. I says "if you know", if you come across it, and if you know. For instance, you may review it in the course of practice, but you may not "know" for a variety of reasons, one of them being you don't know an applicable law. I think it's well drafted.

If we had a legal duty to review prior years returns for errors, logically it would go back 3 years (am I right?), and the profession would grind to a halt. Besides that, what would the fee be then? You'd have to triple it at least. Bottom line: if we review, and if we know. If so, comply with 10.21. And only comply with the requirements of 10.21, or you could get yourself in more trouble than you think, I think.

I've got a new potential client coming in. This is his first year as a sole propietor. (Truck Driver-Local). Gross of about $130K.

I asked him he has his expenses totaled for the year. He said he didn't know he was supposed to keep track so he didn't keep any reciepts.

Any input?

Then again, we rely on the 'shocked, shocked that gambling goes on' attitude of our new clients, believing them, yet I can't help but think of the Spoons, the old couple in The Night of the Hunter, who push Shelley Winters into marrying Revered Harry Powell, then lead the parade to lynch him.

isn't that how good accountants are determined?

hhmmmm. :)

Will

I will add, before someone else does, that Cohan would likely not work with listed property. We can throw that out for discussion too, though we might not have the stomach for it this time of year.

That's how I've handled them in the past. If it's thier first year, I ask them to do thier best and reconstruct with whatever back up they do have. I scare the living !@#$$ out of them so they'll come in the following year with everything added up. I works 99% of the time.

Just wanted to get someone elses input.

I get what you're saying Natalie. But I think Sam makes it a little too easy to assume that you could document anything against the other preparer. I don't want to put words in his mouth in any way, I'm probably misunderstanding him. You look at the prior return and your experience tells you something ain't right, your new client tells you that also regarding his past dealings with the preparer: something stinks. That right there is more than a mere suspicion, let's call it probable cause. It would be enough to make an anonymous tip if the present preparer so desired. Then, let the government document/build the case, if there is a case. If you do have some documentation or hard facts(and frankly want the reward), then use that new law I mention above, however, I don't know the parameters of it's liability protections to the whistleblower. Sorry, I don't have a cite for the law, I'll try to get you one.