Discussion:T/P Not wanting to report Travel Adv
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| 6 April 2006 | |
| Sch C T/P has Advertising Consulting busn and elects cash basis. Discovered 5k travel advance in Dec 05 which technically S/B reported in 2005 however the client issued 1099-Misc excluding this amount. T/P naturally wants to report the 5k in 2006 when she incurs the actual expenses. I recommended she be accrual but she says no. Then I say you can't have it both ways.
Worst that will happen if she gets audited is she will have to show it in 2005 if discovered. Or is there any gray area here where this can be acceptable along as she reports in 2006 or is this in my opinion fraud and she must include it in 2005 no exception? I being an EA do have my clients sign an engagement letter which states they are ultimately responsible for all information entered on the return.
1. Walk away and she can do anything she wants. 2. Advise her of the potential liability if there is no exception and file the return. For the most part she has been cooperative and follows my direction. This is a first time client and everything of what I have seen from her seems ok.
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| 6 April 2006 | |
| I don't think an actual advance should be automatically taxable. A cash basis client can receive customer deposits on sales, but they're not sales since legal transfer of property or services has taken place. (Well, services are a bigger problem..) So I wouldn't walk, and I wouldn't force it into income either.
That's just me, been wrong before. Today in fact. | |
| 7 April 2006 | |
| Well, I would say it depends.
If your client must pay back any monies not used, then I would treat it as a non-taxable deposit or loan in 2005. When she incurs the travel expenses I would then offset them with the advance. Make sure her books treat it this way as well. On the other hand, if her agreement with her client is such that she gets to keep any money not used, then the entire $5K is taxable income in 2005. | |
| 8 April 2006 | |
| Here is my T/P latest response:
I am concerned about reporting the $5000.00 at all. that was a cash advance that was directly spent on location out of the country. I do not think my client will be issuing a 1099 next year as that check was cut well in advance of the $5800 payment that they did report. I prefer to leave it out. To me this is definitely not "smelling" right! Why is she not wanting to show it on her books at all? As indicated above, you book it as an advance in 2005 and then when she can supply me with reciepts for the 5k then I would offset it. The fact that she occured this out of country has no bearing since she is a US citizen. All I can do is leave it on since she did rec'd the 5k in 2005 otherwise she can do her own accounting. Her comment referring to payment cut well in advance, per her deposit schedule she provided it shows 5,286 and 5k deposited on 12/20/05. I guess she could have held onto to 5k for awhile...but seems suspicious. As for the 5,800 there is no deposit for this amount so wondering now if there is another amount she is not including...I'm just not feeling good about this...or am I being too cautious here? Sounds like I'm getting close to walking away! Comments/suggestions? Thanks | |
| 8 April 2006 | |
| If the amount was specifically excluded by taxpayer's client, I don't see what your worrying about. The decision has been made for you by someone else's accountant. | |
| 8 April 2006 | |
| As long as she leaves out the relevant travel expenses, it's a push, but it is odd. | |
