From TaxAlmanac, A Free Online Resource
From TaxAlmanac
Discussion Forum Index --> Basic Tax Questions --> Previous tax preparer made up deductions
Discussion Forum Index --> Tax Questions --> Previous tax preparer made up deductions
Robi (talk|edits) said:
| 24 January 2008
|
| Hello out there, I know this must happen to at least some other tax preparers: A new client calls me because client's former tax preparer is deceased. Former preparer was not an EA or certified by the state and had someone who was certified (CTEC) sign the returns. I find out from the client that the deceased preparer made up huge capital loss that has been carried forward at $3K per year since before 2003. There is $12K left to deduct. Also, the capital loss is reported only on the federal return. Previous preparer also just made up S-E expense deductions on Schedule C so that this client's tax return had just a certain tax liability. Since this is an S-E taxpayer, the state is getting a copy of the federal return. I know there are new ethics codes in place for EA's that include huge penalties for fradulently reporting deductions in order to lower clients' tax liability. What would you do in this case? Thank you for all replies.
|
HarryEA (talk|edits) said:
| 24 January 2008
|
| You have to advise them to amend the previous returns & pay the additional tax due. If they choose not to (which will probably be the case)then it is their problem. I would document it, perhaps even get them to sign something acknowledging you gave them that advise. I certainly would NOT use the capital loss carryover on a return you are doing & as long as you play it straight from here out you are ok.
|
Robi (talk|edits) said:
| 24 January 2008
|
| Hi HarryEA, Thanks for your reply. So I would just drop the capital loss carryover off the return for 2007? Would I need to send a statement with the 2007 tax return (if I proceed with this client) to the IRS? I've not run into this problem before so am totally naive. Thanks again for your assistance.
|
Ksnoopytax (talk|edits) said:
| 24 January 2008
|
| I just finished defending a client under audit who's preparer made up deductions on his tax return for at least 3 straight years. I would take Harry's advice and advice him to amend his previous tax returns. If he doesn't, then at least prepare his current year tax return using correct figures.
|
BEGooding (talk|edits) said:
| January 24, 2008
|
| You've got to wonder why the taxpayer allowed his return to be filed with a bogus capital loss and bogus deductions on his schedule C. If he refuses to amend, I would not accept him as a client.
|
HarryEA (talk|edits) said:
| 24 January 2008
|
| Robi.......I would drop the capital loss, no need to do an attachment. The IRS is not going to question a loss that is not there.
|
Lizzit (talk|edits) said:
| 24 January 2008
|
| I had a client who had set up a foreign grantor trust "because it would be tax free" according to her US licensed CPA tax accountant! Ha! She came to us after he died, and we had to explain that of course, it wasn't the least bit tax-free. We amended back six years due to the exposure to penalties and pleaded utter ignorance as part of that offshore amnesty programme a few years ago. They waived all penalties - thank goodness!
Just a thought: One reason why a loss carryforward would appear on a Fed but not a state return might be she moved from one state to another.
|
JR1 (talk|edits) said:
| January 24, 2008
|
| I agree that I'd just drop it and say NO MORE about it. BUT before you do, verify that it was just made up. Perhaps the client forgot? It just seems odd that you'd make up a capital loss for no reason and then carry it over year after year. See how far you can go back and try to find out where's it's from.
|
Death&Taxes (talk|edits) said:
| 24 January 2008
|
| Also, if the person were a resident of PA or NJ, the capital loss does not carryforward for those states.
As I have said before, for people like this "you can only make them unhappy."
|
Fuzzy Faced Leader (talk|edits) said:
| 24 January 2008
|
| I wouldn't prepare the return without first telling the client you are not going to use the carryover. They may be looking for someone who will.
|
To join in on this discussion, you must first
log in.
