Discussion:Preparer's Liability
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| 9 September 2007 | |
| "SEC. 10.21 Knowledge of client's omission.
Each attorney, certified public accountant, enrolled agent, or enrolled actuary who, having been retained by a client with respect to a matter administered by the Internal Revenue Service knows that the client has not complied with the revenue laws of the United States or has made an error in or omission from any return, document, affidavit, or other paper which the client is required by the revenue laws of the United States to execute, shall advise the client promptly of the fact of such noncompliance, error, or omission." The above is from Circular 230. What happens if the client does not take my advice and decides to proceed with the omission? What will be my liability if I go ahead prepare his return based on the information he provides me? (My engagement letter does state that I prepare the returns based on the info he provides.) Please comment. Thanks. | |
| 9 September 2007 | |
| If it were me and I knew he/she was omitting items that I KNEW to be false, I could not in all conscience prepare the return. Yes, you are allowed to as long as you have informed the client, but if one of my clients says to me "I earned 10K under the table this year) and I am NOT going to report it, then I tell them to take their return elsewhere.
There are requirements and there are ethics...I prefer to abide by my own ethical guidelines as well as the law.... Just mho that is :) | |
| September 9, 2007 | |
| Omissions can include legit deductions that they hold out in order to boost EIC and SE taxes when they draw closer to drawing SS...no can do. | |
| 9 September 2007 | |
| Right...if they want to boost the EIC...so many times they want to do that one...shame, shame....they are still "working" the system. I would never take a client like that.
But if you give advice and you do not KNOWINGLY prepare the return on false information you are clear....but I don't want to be known as the accountant that will skirt the truth to save a few bucks. As well....you if you had to testify in tax court and knew the truth, could you knowingly say you did not? | |
Taxstudent (talk|edits) said: | 9 September 2007 |
| First, that it is not the current version of Circular 230. The current version reads:
A practitioner who, having been retained by a client with respect to a matter administered by the Internal Revenue Service, knows that the client has not complied with the revenue laws of the United States or has made an error in or omission from any return, document, affidavit, or other paper which the client submitted or executed under the revenue laws of the United States, must advise the client promptly of the fact of such noncompliance, error, or omission. The practitioner must advise the client of the consequences as provided under the Code and regulations of such noncompliance, error, or omission. Your liability under Circular 230 is found in section 10.51(d): (d) Giving false or misleading information, or participating in any way in the giving of false or misleading information to the Department of the Treasury or any officer or employee thereof, or to any tribunal authorized to pass upon Federal tax matters, in connection with any matter pending or likely to be pending before them, knowing such information to be false or misleading. Facts or other matters contained in testimony, Federal tax returns, financial statements, applications for enrollment, affidavits, declarations, or any other document or statement, written or oral, are included in the term information. That is not to say that they will not go after you criminally under Code section 7206(2). The reason Circ 230 section 10.21 is phrased that way is because lawyers must be allowed to give their criminal tax clients advise on their non-compliance. If you're the return preparer, on the other hand, you can't prepare the return. Read Circular 230 ยง 10.34. | |
Taxstudent (talk|edits) said: | 9 September 2007 |
| Sorry, I did not read the original post closely enough. If you know, you can't put the genie back into the bottle. You can't prepare the return (ethically or maybe legally). If you do not know about the omission, you may be off the hook, but see this discussion from the Internal Revenue Bulletin a few years ago.
Please note that I'm not a lawyer. If you need legal advice, contact one. | |
| 10 September 2007 | |
| It's not easy for everyone to keep up with revisions as they come out. What animated this, and what got it all moving was not the small tax practitioner. It was the large accounting firms, and some very smart tax lawyers, that were abusing the tax shelter situation. The IRS did not have the internal expertise to oversee this (or enough bodies to oversee it), and because of some of the quirks in government hiring (i.e. the fact that no employee can earn more than the President, and the fact the Presidental salary had not kept up with inflation at that time) they were not permitted to hire top dollar people, so they decided to put the burden on the preparer, or lets say to aim it in that direction. The small practitioner is continually in the position of taking hash, and turning it into a 3 course dinner, and trying to do so under an extremely complex tax law. All roads lead back to Congress, of course. The EIC is a perfect example... it needs to be scapped and be rewritten from top to bottom. | |
| 10 September 2007 | |
| And yes Sunny, the answer is no, under either version.... my problem is not with the intent of Circ. 230. My problem is with parcing out what version some small practitioner is supposed to know when there's not a whole lot of difference between the two. This particular provision, as it was explained to me, is meant to mainly address those errors and ommissions already commited by the TP, or a prior preparer. It is expected that the current preparer follow the law, take into account information that he has knowledge of, and to question those matters that.... seem quesitonable. | |
| 10 September 2007 | |
| Thank you all for your comments.
CrowJD, by "the answer is no", do you mean that the preparer is NOT liable for the omission because he has advised the client? (I understand we have ethical and conscience issues to deal with as Sandysea pointed out). Thanks again. | |
| 10 September 2007 | |
| I meant: no you can't prepare the return not really because of an ommission, but because it simply does not reflect the tax law. The "error" and "ommission" wording is meant to look backward in a sense. For example, I had a new client come to me last year, and we were reviewing the prior year return, and he mentioned that he was writing off his home landscaping under home office deduction, or something like that. As a practitioner, I don't have a duty to amend the return to correct the old error (or ommission, whatever it may be), but I DO have to "advise the client [see last two sentences of the section]. This was put in so that a lawyer,or a preparer, did not have a duty to actually "inform" on the client, or amend....... just a duty to advise of the error or ommission and of the consequences to the TP if he fails to do so. This is how I understand the law. | |
| 10 September 2007 | |
| This truly scares the dickens out of me! I try so, so hard to stay current, do research and pass along what I believe is relevant to my clients and/or potential clients. To know that I am giving the best I can to guide a taxpayer to do the right thing and know that they are willing sometimes (too often!) to 'straddle' that line (and I know that I will no longer state that "I will tell you what you are supposed to do but you must decide what you will do".) This discussion makes me think of every return I have done or will potentially do and wonder whether something will come back to me. Where in the world do you draw the line? I truly believe that if we prepare returns that do not have one even remotely questionable item on it, we'll stop preparing returns right this second! Do you NOT prepare a return because the taxpayer says I don't have a written log of mileage, but I drove 12,368 miles? Do you not prepare a return because they don't keep receipts for all meals and note business purpose/attendees, etc? What about the discussion concerning only getting a sheet of paper with Sch C income and expenses and using that for the tax return? More and more I think, one more tax season and I'm doing something else. This is too much. | |
| 10 September 2007 | |
| Sorry if I am dragging this discussion for too long.
CrowJD, please allow me to paraphrase your comments: It is my duty to advice the client of the omission and errors that have taken place though I am not required to correct them. However, if an omission is on the return to be prepared, and since I AM aware of the omission, I CAN NOT prepare the return if the client decides to proceed with the omission even if I have already advised him the consequences. I appreciate all your comments and explanation. It is an important subject for me because I have clients like that. I need to make a decision before the next tax season. Thank you. | |
| 10 September 2007 | |
| You have to keep the Section we are talking about in mind, Sec. 10.21, the version quoted by TaxStudent. As explained to me, this looks back. TP has presented you with an old return, or other filing with the IRS, say an affidavit, etc. Then you follow what 10.21 says regarding this previous filing, mentioning consquences also. Even with a good engagment letter, its very difficult to not have to review old returns, especially for a business return if you are the new preparer, because items have to be picked up, and carried forward, etc. This does not require an exhaustive review of that old return, in my opinion, just if you DO notice something, go with 10.21. Now, as to matters YOU prepare for the client, you can rely on on your engagment letter, but IF you become privy to some information, or IF any of the numbers seem unusual etc, and warrant further investigtion, then you have to bring the return (and the client) into compliance, and if they refuse, you may have to terminate the engagement. This is my interpreatation that I have gained through attending ethics seminars, but I would also enjoy hearing from other practitioners. | |
| 10 September 2007 | |
| I personally would never, ever sign a return that I knew for a fact had incorrect or false information on it. Let the client know and if they will not correct the item, refuse the engagement. I question all items that look funny and give the client a through reminder of what their record keeping requirements are. And document document document. | |
| 10 September 2007 | |
| Continuing to beat that poor horse...Geo, I am not being critical, just wonder what you would present if questioned, certainly not, "it didn't look funny, so I didn't ask". What I'm trying to say is that unless we question everything (or is it 'don't ask, don't tell' and we're okay?) aren't we always taking a chance that the figures are made up or exaggerated or unsubstantiated at least? I would never sign a return that I knew for a fact had incorrect or false information on it either. NEVER. However, I'm wondering (because I know I have) about information provided by the taxpayer that I have questioned, made sure they heard the reasons for my asking and still wondered about it. What do you do then. You've tried your best to ask the appropriate questions, provided guidance and instruction and still they're going to do what they're comfortable doing. | |
| 10 September 2007 | |
| Then you have practiced due diligence in my opinion. If I question something that does not mean I am right and they are wrong...it just doesn't sound right. I give them my "mother talk" and let them know they are responsible for the outcome and that it might be prudent to make sure they can document what they are requesting, but unless I know it is false, I can't be the police and I certainly am not going to do an audit to uncover omissions on a 1040.... | |
| 10 September 2007 | |
| I agree. You practice due diligence. If you want to examine every scrap of evidence the client has, every receipt, every document, then you can. It is their return. Its their numbers. Follow due diligence but it is their numbers and if you do not have a reason to distrust them then don't. I am not doing an audit, I am doing a tax return. If I do not feel comfortable I refuse the engagement. Which I have plenty of times. | |
Donniecastleman (talk|edits) said: | 10 September 2007 |
| I keep notes on everything in a client's files, with or without their knowledge, the CPA i work for on occasion is a stickler for CYA, and i've picked up that trait as well. | |
| 10 September 2007 | |
| "Just wonder what you would present if questioned, certainly not, "it didn't look funny, so I didn't ask'."
Questioned by whom? IRS? Statute does not permit IRS to do that, in a narrow question implied by your post. | |
