Discussion:Tax Almanac Poll: Real-life tragedies due to missing tax returns / documents

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Discussion Forum Index --> Business Growth Community --> Tax Almanac Poll: Real-life tragedies due to missing tax returns / documents


Wiles (talk|edits) said:

12 August 2009
I'm an advocate for not becoming my client's filing cabinet and not having to invest in a paperless solution. I return all of my client's documents without making copies, and I shred my copy of their tax return after 7 years. I have not had a problem...yet. Perhaps, I have just been lucky.

I would like to poll fellow Almanacers. Have you or your or your clients incurred a real-life tragedy because a copy of a tax return or supporting documentation was gone and could not be recreated? Tell us about it. How much did it cost the client? How much did it cost you?

Brock And Associates (talk|edits) said:

13 August 2009
Well, I have a client who is a walking, talking, real-life tragedy.


He is currently....well, I don't honestly know where he is in the IRS collection process. He engaged me to complete tax years 2002-2006, 2008 this year after I completed his 2007 return. He called me numerous times for copies of his tax documents, forms, etc. and had I not retained them, it would have been bad for him.


IMHO, it is a customer service issue and if a customer's home burns it sure keeps clients happy to be able to produce a return for them again.


Michael

JR1 (talk|edits) said:

August 13, 2009
Like you, Wiles, I've not had a big problem. I do tend to retain returns for longer with current clients, esp. things like 706's since they contain basis info for DOD for the heirs. I can only recall once or twice that someone was looking for something WAAAAAY back that they thought I might have, but understood that I didn't have it since it was so far back. If they don't have it, why should you? And when my two file cabinets get too full for everyone to fit, I go in and start pulling out the old stuff until it all fits again! Practical I know.

Storm155 (talk|edits) said:

13 August 2009
Wiles & JR1,

What do you keep to support numbers you entered into the tax return?

JR1 (talk|edits) said:

August 13, 2009
For me, nuttin' really, if they didn't fill in my organizer and just give me docs, which I enter and then return. I figure that in an audit it's in their best interest to prove the numbers too! so they'll bring 'em back. But no, I don't copy or scan them, there is NO requirement to do so, and it would add so much time, I can't imagine it.

Storm155 (talk|edits) said:

13 August 2009
Do you then not worry about support in litigation since tax practice is a large percentage of malpractice claims? Seems odd to me after having it drilled in my head for so many years.

Riki EA (talk|edits) said:

13 August 2009
No tragedies to report, but we scan all supporting documents, and before we had the scanner, we photocopied all original documents before handing them back to client. Not infrequently we get calls for copies of past W-2s or tax returns, and it is now easy to e-mail or print out a copy since they are scanned into the system.

We find that having access to copies of old supporting documents have been VERY helpful when doing current year returns. We have a lot of long term clients, and it is great to be able to pull up an old HUD-1 or an old brokerage statement which helps us determine basis. It is true that the client should have these documents, but often they have no idea where to find them. At the very least, it saves us time.

We have a client, an older widow, who just found out that her 2003 tax return was never filed, and the IRS is now requesting it. We started doing her returns in 2004, and at the time requested a copy of her 2003 tax return. In 2004, we hadn't started scanning, so we had to make a trip to storage to retrieve her file. We had made a copy of the 2003 return, filled in by hand by her late husband. It probably was never mailed in, as he died in 2004, but his widow never realized it. We will redo the return, but it is a great help that we had a copy available in storage. So, we highly recommend keeping copies or scans on file.

JR1 (talk|edits) said:

August 13, 2009
Not until you mentioned it, Storm! Thanks a lot.

Wiles (talk|edits) said:

14 August 2009
Only a few "what if's" above, but still no real-life tragedies.

Storm155 (talk|edits) said:

14 August 2009
Riki, Thanks for that. I was beginning to think I was the only one keeping supporting docs.

We copy all the documents that support our numbers on the tax returns or bookkeeping adjusting entries. All documents have tic marks on them in colors per our office documentation policy that indicate whether we received them from the client and if an office copy was made to support the work we do. All docuements are returned to the client in their envelope with their copy of the tax return. Usually in the order they are reported in the tax return.

No real life tragedies, but have used the supporting workpapers to calm excited clients when they get a notice about information on a 1099 that the IRS got, but they didn't report. They were sure they gave us everything! Usually when they bring their copy back to the office, whether to argue or for the next tax season, all the information is in the order we sent it back to them.

Having the copies helps when having new staff working on a client. They can look at last years return and documents and then proceed with the current year. If something is missing add it to a question/needs list for the client.

CrowJD (talk|edits) said:

14 August 2009
Wiles, the real tragedies you never hear about! That's what makes them a tragedy.

This is an unscientific poll, as CNN and Fox would say (which allows them to lie unmolested).

Theres a many a return that got swept out in the ocean down there in New Orleans, and thier owners with them. Is Brad Pitt the only one that remembers!

What we need to do is get Sally Struthers down there, she'll get it cleaned up, and a chicken in every pot (if she don't eat it first).

Wiles (talk|edits) said:

14 August 2009
Only Macaulay Culkin is allowed to lie unmolested. All reported tragedies will be fully inspected at snopes.com.

JR1 (talk|edits) said:

August 14, 2009
Storm, don't feel bad! I never said that what I was doing was best practices....getting in that habit early will serve you well. And you won't be scratching your head like I am now over a CP2000 wondering, ok, how did we get to THAT number? (But the client is working with me, and we'll get to the bottom of it!)

Wiles (talk|edits) said:

14 August 2009
I would like to confess, we do make copies of all HUD-1's. We also make good use of our Organizer including notes where a number came from. And we type some notes about our client and their taxes if we believe that info will be important later.

We return all client documents in a folder with a label that says it is their responsibility to keep it. If a client gets audited or a CP-2000, then we ask them to bring that folder back. If they don't have it, then we can either get transcripts from the IRS or from the Payer.

Every year you get new clients. Those clients do not bring you all of their tax returns, HUD-1s, K-1s, W-2s, Stock Basis, ... from the time they were born until now. Your entire client database is full of clients that were once new clients. Are you not uncomfortable about this situation? All those old tax return and you have no supporting documentation? Yikes!!! True, you did not file those returns, but they are your client now. My point is that you and your clients have been able to survive without you keeping those old records. So why start now? Why incur these costs?

Storm155 (talk|edits) said:

14 August 2009
Do you keep the organizer or a copy of it? Are all your notes electronic? If electronic, static or non-static?

Regarding new clients, the liablility issue is with the prior preparer. I do request 3 years prior returns and depr schedules. I do not ask for documents on anything that would carryforward to the year I am working on. But with the preparer penalty impact, I am rethinking getting supporting documentation on fixed assets. Besides this will make the client get their paper work in order if it is not already. Other carryforwards, not so sure on that. I do remind the clients and include verbage in the engagement letter that the document retention is their responsibility. My documentation needs are to support my work. As long as they are my client I keep that documentation, and then for the next 7 years after they are no longer my client. If they lose their original document, I will provide a copy of mine for a fee. Needless to say most are carefull with their copies. The problem is with fixed assets. I try to get them to set up a seperate file for them and then when they are sold to put them with that years tax information. But, they usually do not get out of the purchase years folder and into the fixed asset file.

Looking to start scanning current clients current year info into/onto electronic format. Do I want to invest in file cabinets or employees? Employees make me money. File cabinets are in the way.

Wiles (talk|edits) said:

14 August 2009
We keep the organizer in their file and associated workpapers like P&Ls. Shred it 7 years later. Files stay pretty thin this way so storage is not a hassle. We do a keep a permanent file for things like HUD-1s or anything else we know we will need later. (I do agree that this "permanent" stuff should be scanned.) The notes are kept electronically as part of their tax data file. We print our copy of their return as a pdf document. Why pay for DMS when you can get the same thing for free?

Scanning everything is wasted time. I like to invest my & my employees time in creating billable hours.

Riki EA (talk|edits) said:

14 August 2009
We've been scanning in pretty much everything, including the Organizer (if it has been filled out), workpapers, etc. We have been keeping paper files for five years, and as the old folders get taken out of storage, we've been scanning any important document copies (before shredding them) for current clients. We started scanning in 2006 and it has been a big help.

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