SaraEA

Terry D, we had a young woman appear this year who is a child of one of our clients so we charged her half price. I didn't do her return but was called over to answer her questions because the preparer was with other clients. Our return showed a $2k+ refund, but she did it in TurboTax and was getting over $4k and wanted to know why. So I actually interviewed her (the original preparer never even met her) and discovered that although she had a child, she was under age 24, a full-time student, lived with her parents, and no way did she supply over half of her own support. Her refund changed to $19. She started to cry and said that if she couldn't claim herself she would lose her FREE state medical insurance, her financial aid for school, should she change her address to her boyfriend's, blah blah blah. She ended up paying us for our work but asked that we not file the return. I am certain she went back to TT and got that $4k, free medical insurance, a big grant for college. Her parents make more than I ever did. And as a taxpayer, I am the one paying for that insurance and college and great big EITC. What is wrong with this system? As to helping a fellow preparer with questions on a return, it's a wonderful thing. We do it on this board all the time, and I get calls from preparers in other firms for help quite often. (I find CPAs are not so willing to help, as they see it as taking away business or something.) I think we realize none of us can ever know every kink and turn of our convoluted tax code and therefore are willing to share what we have mastered. I am not worried about someone taking away business. We have more clients than we can handle and either have to cull our client list and/or hire more help. That said, the person asking your assistance is clearly not a fellow professional, he only thinks he is. You made him realize he is indeed in over his head, and maybe he'll give up the endeavor when you point out tax code intricacies he doesn't understand. I'd let him swim.

Lion, you respond to clients checking on your progress? For those clients calling because "I just want to know how if my return is done," we have trained our receptionist to ask if we called them yet. When the answer is no, she is supposed to tell them that we will call them when it is. This does save us time from responding to some ridiculous phone calls. (Doesn't mean they don't call again though.) If you have a solo office, I would simply hit "delete." Yesterday I got a call from a gal who moved out of state and sent her stuff to me. I had both emailed and left a voice message that I was missing her IRA distribution 1099R. I answered her call thinking she had some information for me. Nah, she said she would look for the form but just wanted to know if she was getting anything back "so far." Me: I can't possibly tell until I see how much you took out of your IRA and how much tax was withheld. Got the form today and the distribution was in excess of $100k (10% withheld, no state). This is the same client who had moved to one state in 2014 and moved to a different state in January 2015. and told me, "I don't have to pay taxes (in new state that she lived in for 11 months), right? Did the return and she not only owes federal big time but BOTH states. Can't wait to see how long that phone call takes. I've been watching it and have come to the unscientific conclusion that between one-third and half of the calls and emails I get are unnecessary. In August I can put up with it, but certainly not now. How do we make clients realize that they are not our only client, that they can't get an immediate response to nonsense communications, that their communications ARE nonsense and time-consuming and that if they would just leave us alone we could get their returns done? And when people text, they do expect an instant response. Never in a million years would I call a client from my personal cell because then they would have my number and I'd never get away from it. We need to train our clients to respect our time better. Anyone done it successfully?

They got a 1098T from a nonaccredited school??? Never heard of that before. According to the instructions for the T, "You must file Form 1098-T if you are an eligible educational institution," defined as "a college, university, vocational school, or other postsecondary educational institution that is described in section 481 of the Higher Education Act of 1965 as in effect on August 5, 1997, and that is eligible to participate in the Department of Education's student aid programs." Maybe this "school" is trying to look legit to nonsuspecting students?

Yes, basis is her basis at the time of the gift. There are some wrinkles to be ironed out though: Did the quit claim specify Mom could continue to live there (i.e., retain a life estate)? If not, DID she continue to live there, pay the bills and taxes, just as if she still owned the place? If so and she died, the brothers get stepped-up basis. (The full value of the home would be included in her estate, so step-up is allowed.) If not, you have to calculate the value of her retained life estate. This is tricky--you have to look up the federal interest rate at the time of the gift and then go to the IRS actuary tables using her age closest to the time of the gift to get a factor value of her life estate. That percentage is applied to the basis in the house. What you end up with is the portion of the basis she retained and the portion she gifted. The gifted portion will then be divided evenly among the brothers, giving each of them their basis. If you're lucky, a gift tax return was filed and these numbers will be already calculated. If she had a life estate and died, you get step-up basis. Either way, your client's basis is not zero.

If it is the final year of the estate (in your case, first and final), all income and expenses are passed through to the beneficiary. You don't ever want the estate to pay taxes if possible. The highest rate of something like 40% kicks in at income of only $11k or so. Your problem is that the withholding can't pass through--it has to be refunded to the estate. The daughter already received the distribution, so the estate would have to subtract that from its income and end up with no taxable income anyway. I don't see a way around this except to file an estate return and let the daughter figure out how to cash the check.

Withholding taxes cannot be passed through to a beneficiary. (Estimated taxes may be if a timely election is made, but that's not the case here.) The estate must file a tax return as a nominee recipient of the distribution issued in the deceased's name. The refund of withholding will be issued to the estate. If the estate doesn't have a bank account, the daughter will either have to open one to deposit the refund into or see if Probate will issue a letter authorizing a bank to cash it and give the proceeds to her. Don't be afraid of the 1041 if all that's on it is the IRA distribution. You will be able to enter your fees as a deduction even if they aren't paid yet--the law is explicit on this. The taxable portion of the distribution will pass through to the daughter on a K-1 and she will have to include it on her own tax return. If she didn't continue with required distributions she will face a 50% penalty on the amount she should have taken out. It's not hard to ask for a waiver of the penalty. (I've never once had the IRS refuse.)

Had a client come in yesterday who asked if I knew anything about student loan forgiveness. He showed me a message on the topic he had on his cell phone. Just so happens I did hear about that program.....on the 11:00 news.

In the past two weeks I have gotten three attempted hacks, two from irs.gov (that's what it said). Those wanted me to log into my PTIN account to access messages in my secure mailbox. I logged in at the real irs.gov and there were no new messages. The other supposedly from a client who was sending me his documents "as requested," just click on this secure portal. This one had enough grammar and spelling errors that even if he was my client I wouldn't want him anymore. We know the crooks are targeting preparers because we have the info they need. That darn IRS preparer registry makes our email addresses public, so the crooks know how to reach us. I'm okay with being in the directory but don't want my email in there. Is there anyway to opt out? I belong to two professional associations (NAEA and NATP) and would love to have my email address not available in their directories either. If you delete that info, though, I think you don't get the good communications from the associations that you want to receive. I guess by this point even if you were able to redact your email address, it's already out there so you're still a target. Be scared people, be very scared.

And Congress, who we all know has it in for the IRS, just authorized the use of third-party bill collectors again. Didn't they try that a few years ago and it didn't work? What bugs me is that in response to the massive telephone scam where the "IRS" calls people and demands immediate payment of back taxes, the agency has screamed on TV, the internet, social media, their website that "We DO NOT call taxpayers, or text or email them." So now legitimate bill collectors will be calling and demanding money on behalf of the IRS. I think the scammers lobbied for the new law because it just gave their phone calls credibility.

The banks still have a lot of bad debt lingering from the mortgage crisis. If they wrote it off all at once they'd be way undercapitalized and the regulators would step in. Thus they set aside a certain amount of "loan loss reserves" each year. They cancel the exact right amount of debt each year to keep the reserve account with a decent balance and their capitalization ratios legal. This is why they hang on to some debt for years before they finally cancel it--it has to fit into the books. I just realized something this week that makes me feel like an idiot for not thinking it through before. We are all familiar with clients getting 1099As after a foreclosure and often the Cs don't come for a few years. Bummer for them because by the time they get the C they no longer have a mortgage and are not insolvent like they would have been if they got the C when the foreclosure happened. Had two clients within the week who got As and gave up homes with FMVs more than the mortgages. Duh...these clients will never get Cs because no debt was cancelled. They owed the bank maybe $300k and gave them a house worth $400k. Bank wins.

We have a template "fire client" letter that has options like "the direction our practice is taking" or "staffing changes" or "staff expertise" means we can no longer provide the service/attention your tax situation deserves and that you will be better served elsewhere. Be nice to the client, like it's not their fault. Like Catherine, we have a PIA client we couldn't outright fire because he'd been with us for so long so we kept raising his fees hoping he'd go away. He's still with us, paying us a fortune, so the pain is greatly lessened.

In 2016, schools are going to have to list the amount paid. About time.

For Sch C and SE to apply, don't you have to be in the business of renting tools, computers, whatever? Why not Sch E, not subject to SE? A lot of times I think the people creating the W2s and 1099s just don't know what they're doing. How many times have you seen statutory employee box checked when the employee is a clerk or foreman or secretary? I believe the accounting person doesn't know what that means so checks it to be on the safe side.

Look at pages 12-13 of the pub. Under when to report gains or losses, there are various scenarios but all say to deduct a loss or declare a gain when the amount is determinable, i.e., reimbursed. You can safely ignore the insurance proceeds at this point in time. I think you are letting the disaster area designation confuse you--that allows people to deduct losses in a prior year so they get some money to rebuild sooner. You don't know if you have a gain or loss, so wait until you do. I had a case where a 20+ unit (retail and residential) building burned to the ground. The insurance paid some but didn't want to honor the replacement cost part of the policy (that the clients had paid for for 40+ years). The parties went back and forth for over two years until they finally settled. This was the partnership's only asset, which was now gone, but I had to keep the entity open for 3 tax years until they got their final insurance payment. It was a huge gain too, and the partners found it on their K-1s three years after they essentially went out of business.

We use Ultra Tax in the office. It is a powerful program but a professional's program--not very intuitive. It can do almost anything (but not quite everything). The help screens are wonderful. My biggest annoyance is that the tax projections aren't very good--don't adjust federal and state credits for higher/lower income but do consider AMT and how much SocSec will be taxable. What they really want is to sell you their add-on tax projection software (even more expensive). You can choose the packages you want and pay per return for items you don't choose--expensive!!! We choose a few states but pay a high fee for others. Every year we look at how many 1041s, 1120Ss, 1120s, and 1065s we file and do the math to see if the package makes more sense in each category. Without the package, the fees are horrible but so are the package fees. We gave up on their Creative Solutions accounting program--it was too cumbersome. For those clients not in QB, we switched to ATX for W2s and 1099s, which is much more reasonably priced and much much easier to use. Next year we are likely to switch tax software not because we don't love UT--it really is a wonderful program--but because the $18k price is getting out of hand. The fiasco ATX had a couple of years ago scares us though.

The school has to be eligible to participate in federal student loan programs. The school will know if it is, or you can use a look-up tool somewhere in the IRS education credit pubs. The program must lead to a degree or "other recognized education credential." A CDL license is not an educational credential so I don't see AOC as a possibility. (Should we get credit for taking our state driver license exams too?!) New for 2015 returns: No education credits without a 1098T. New for 2016 returns: The "amount PAID" box has to be filled out. About time.

Is it possible to put the estate on a fiscal year? If the person died in 2015, the first 1041 won't be due until sometime in 2016 and will go on the beneficiaries' 2016 returns. Just say the person died in May 2015. Fiscal year will end April 30 2016 and the return will be due Aug 15. The beneficiaries will have their K-1s months before tax season even opens. Of course, then there is the risk they will lose them by the time they get around to filing.

If there is still time for them to take distributions (and if probate will allow), I would strongly advise it. Estate tax rates are extremely high. I'm doing one right now that is subject to the highest 39.6% tax rate, which kicks in at not much over $12k taxable income. Ouch! Unless the beneficiaries are in that bracket, there will be more money for them if they choose to take some income now.

Egad! First of all, this is way out of the league of anyone but a tax attorney (and a highly specialized one at that), so don't even try to render advice or get involved at all. Just maybe what Mom should do is get a new attorney, tell him or her what she wants, and start all over again. Or just maybe she should just rewrite her will leaving the whole thing to charity. All I really understand from your post is that there are way too many attorneys involved, each likely representing different children who each have way too many interests in mind (except their parents'). I hope your dad's journey is smooth. Medical science has never been good at predicting at how long someone has left. As you will come to see, that is largely up to him. And while our own lives may seem to revolve around tax season, in the larger scheme of things it's just one tax season that succeeds others just like it and precedes many more.

I have received several emails in the past two weeks from something like PTIN @ irs.gov. It says there is a message in my secure mailbox and to go to my account following the link. The IRS announced awhile back about crooks trying to access our info, so after the first email I went directly to the irs site I know and love and logged into my PTIN account from there. No new messages! I noticed that some of these emails don't spell out the link but say click here. One I got today showed the link address and it was irs.com.something else. All of these messages had irs.gov as the sender, it was the links that were suspicious. Beware.

All good info to think about. Yet much of the article is geared toward lowering estate taxes, just like most financial press for the elderly and "advice" that comes from brokerage firms. Has anyone on this board ever filed a 706? I've done several in tax courses over the years, but I only did one real one and that for a state with a much lower threshold than the $5.9m federal threshold. I have never, ever filed a federal 706. Most people with that kind of assets have set up trusts, retitled assets, whatever they need to do to get their estate below the magic numbers. The items about considering a fiscal year, playing with savings bond interest (often fully wiped out by high medical expenses the decedent had before death), and scruitinizing statements for what occurred before and after death and whether step-up basis was applied, are solid. The stuff about minimizing estate taxes sounds more like the presentations at the "free" dinners we are so often invited to attend (and that many of our clients unfortunately do attend and buy into).

We are in a high cost of living area. Many clients are affluent, some decidedly not. Our minimum is $100 for someone with one W2 or 1099R and maybe some bank interest. Dependents are $50 with only one W2, $75 if more than one, full price if out of state W2s or investment income in the mix. We discovered that the person we bought the practice from was still charging dependent rates for "children" who had long since graduated and were earning upwards of $200k a year. We ended that and guess what, mommy and daddy still paid their tax prep fees. I like the idea of charging full price and then showing a discount--will bring it up with the boss next week. It does get noticed when kids come off of their parents' return and get hit with a full bill. It will also help us notice that the child is no longer a child and stop automatically charging last year's fee.

I'm talking about the amounts reported on the 1098T. Client brings the form in, it has the amount billed in box 1, and that's what we've relied on, foolishly it turns out. Many of our clients pay upwards of $30k for tuition, and interestingly these have not been audited (a few exceptions for ones who also took money out of 529 plans). We have had multiple audits of clients who paid $10k or less. Has anyone else noticed this? I have read that education credits have been an IRS target for the past couple of years, and we can attest to that in our office. They could have saved their and our time by requiring the schools to fill out the complete form from the beginning. C'mon, the records are computerized so it can't be that much of a burden. Can anyone surmise why this wasn't mandated from the get go?

The 1098T has been a problem ever since it was introduced. Remember when it first came out all the schools had to fill in was the full-time student box? The rest of the form was blank. Now all they've been filling out is the "amount billed." Means nothing. The IRS has audited lots of our clients, asking for proof of amount paid. When the clients request their record of account from the school, guess what? They often didn't pay the amount billed within the calendar year and owe some tax. It's about time the schools have to fill in all the boxes. My question is why the heck did it take so long? I can't guess why the IRS issued a form and for years hasn't required it to be completed in its entirety. This has led to a lot of audit letters and wasted IRS resources and wasted tax pro time and cost taxpayers interest. (Silly them, they trusted the official form.)

I was elected to rewrite our engagement letter, which I am doing now. During the year when we were handed copies of prior year returns done at other firms, we copied the engagement letters for ideas. One was EIGHT SINGLE-SPACED pages! I even think NECPA's three-pager is too long for the average client's attention span on such matters. How long is AICPA's? The point is to let clients know what we are responsible for and what they are responsible for. I don't think our prior letter was given to our E&O company for approval. Is that standard procedure? They never asked for it. Of course the insurance people will want something like AICPA because it's probably so detailed they will be responsible for nothing!