Discussion:Professional Responsibilities
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Discussion Forum Index --> Advanced Tax Questions --> Professional Responsibilities
Discussion Forum Index --> Tax Questions --> Professional Responsibilities
| 7 March 2008 | |
| Have 1040 client, have done their taxes for years. In 2007 husband forms an LLC with two other members in the business of media/video taping. Around April of 2007, husband and one member withdraw from the LLC, leaving the third member to conduct the business. Husband continues to pay the rent for the office they rented, as well as put close to $50,000 into the business in 2007.
Wife calls last week to tell me this, and asks if they can deduct the $50,000 on their personal taxes in 2007. I tell her I can’t answer that without getting more information. I ask her who did the tax return, how they handled the accounting for the business, as well as for the member contributions and for the withdrawal of the two members. She doesn’t know, but she will find out. She tells me she filed 4 quarterly payroll returns with -0- wages. She also tells me that she doesn't think they did much with the bookkeeping.
Maybe it’s been a long week, and this has made it longer… | |
TheTinCook (talk|edits) said: | 7 March 2008 |
| You can rely on the k-1 in good faith as long as you don't give enough advice on it's preperation to be considered a "preperer" on the business return. This is one of those don't ask, don't tell, don't want to know, don't get involved situations. You need to specify the bounderies of your engagement.
If they are trying to claim capital contributions as deductions or suspicious UPE, etc on the 1040, then that is where you need to be concerned. If you can't reconcile what they are claiming with your foreknowledge or with reasonable inquiries, then turn down the return. In any event, I would not prepare a partial return in this case, it would be all or nothing. | |
| 7 March 2008 | |
| Thanks, TC. I called her back and suggested that they take the information to an experienced professional to prepare the returns. If he still chooses to prepare the returns, I think I have covered my bases until I see the K-1. Then I will decide whether or not the do the return. You're right about the partial return... I hand't thought that all the way through. My brain is kind of in a fog.
Thanks again. | |
| 7 March 2008 | |
| They have you file their 1040, but they want to try to file the business return themselves. Well. While I agree with TheTinCook, I think I still would seriously consider getting away from the likelihood that this will be one big mess at some point. I'd wager that this turns into one of those nightmares that nobody wants to do. | |
Bottom Line (talk|edits) said: | 7 March 2008 |
| Agreed. And guess who gets the blame when the "nastygram" comes. | |
| 8 March 2008 | |
| Tin Cook, I think that you can only rely on the K-1 if you believe that the preparer knew what he/she was doing. Doesn't matter whether this was self-prepared or professionally prepared. Witness all the tax pros on this board who don't know basic tax law. | |
| March 8, 2008 | |
| I seem to recall learning at a GearUp seminar years ago when they were REALLY good, that you could NOT in fact, merely rely on the K1...it was discussed in the 1040 seminar for just that reason. | |
| 8 March 2008 | |
| Thanks for your input. This may turn into an ugly mess, and definitely one that I don't need! Only one other time have I "fired" a client before. Any suggestions on how to approach this one? | |
| 8 March 2008 | |
| advise them that you cannot do the personal return without reviewing the accuracy of the corporate return, which will cost as much as if you actually did the corporate return. If they leave, you win. | |
TheTinCook (talk|edits) said: | 9 March 2008 |
| Wow, I had no idea I was so reckless.
For the most part, I've been using the guidance in 31 CFR 10.34(c) (I just found out that Circ 230 is kept in part 10 of chapter 31 of the Code of Federal Regulations.). The amendments due to MLTN etc, have not changed that subsection. "(c) Relying on information furnished by clients. A practitioner advising a client to take a position on a tax return, or preparing or signing a tax return as a preparer, generally may rely in good faith without verification upon information furnished by the client. The practitioner may not, however, ignore the implications of information furnished to, or actually known by, the practitioner, and must make reasonable inquiries if the information as furnished appears to be incorrect, inconsistent with an important fact or another factual assumption, or incomplete." Which is pretty much what I said earlier. Certainly ask questions, but no need to go overboard. Out of all the K-1's I've recieved, the only ones where I knew the preparer in any way at all were ones that I prepared. I certainly didn't have access to the accounting data to determine if items were treated correctly, much less a copy of the pass through's return. Most of the clients wouldn't know either. While I agree that the client is a good candidate for firing, I think we are getting slightly overcautious. I had a supervisor tell me the other day that preparing 1096/1099's or adding up receipts for a client would expose the company to excess liability, so what do I know... | |
| 9 March 2008 | |
| TinCook, my advice above only applies when there is 'reasonable doubt' as to the accuracy of the K-1. If you know that the other preparer knows what he/she is doing, you can generally rely on the K-1. If you know that they are the village tax idiot, you can't rely on it. You know who does bad work in your community. | |
TheTinCook (talk|edits) said: | 9 March 2008 |
| Ah, I gotcha Kevin. Thanks. | |
| 9 March 2008 | |
| How funny! They cannot attack a 1040 but they are going to prepare the 1065.
I suggest: let him do it. When he sees what is involved he will come back on his knees begging you to do his partnership return. | |
