jainen

>>she charges too much<< That's the classic way to get rid of an undesireable client. Always ask why the client is changing preparers. Most of us haven't raised rates much in the last couple of years, so if that's the reason, watch out!

>>the stipulated facts in the ruling [emphasis added] << Added emphasis notwithstanding, you are assuming too much. The Court goes on to say, "for reasons the record does not show,[3] the return that VTS prepared did not include the $3.4 million." The footnote spells it out even more clearly. "In their briefs petitioners seem to imply that the omission was the result of mistake or oversight by the C.P.A. who prepared the return. However, the stipulation does not state the reason for the omission, and because petitioners chose to submit the case under Rule 122, they did not call the C.P.A. as a witness. Thus, we do not know why the $3.4 million was omitted." That judge is no dummy. He saw that the taxpayers' lawyer took pains to avoid actually saying the CPA screwed up and didn't let the CPA tell his obviously relevant side of the story. And that WAS the issue. The taxpayers' position was that the penalty should be abated for reasonable cause in that they had relied on professional advice. But over and over again the judge says things like, "preparer's unexplained omission." He didn't believe them, and neither do I.

>>Blame the accountant<< The IRS is pretty deep into the accountant point of view, so they're not very sympathetic to the argument. Remember, this circumstance went to TRIAL in a federal court. The only issue was whether to blame the accountant. Not only did the taxpayer's evidence fail to convince the judge he wasn't at fault, he had NO EVIDENCE whatsoever that the accountant even made a mistake. According to the judge, "petitioners seem to expect the Court to assume" it.

>>Obviously the preparation firm needs to re-think their review process.<< That wasn't obvious to the Court, which observed, "It may be (and petitioners seem to expect the Court to assume) that the omission was the result of the C.P.A.'s oversight of one Form 1099 amid 160 such forms, but no actual evidence supports that characterization." In other words, they tried to slip it through to save a half million dollars, but they got caught.

What do you think of this? Link to preparer error The return omitted one of 160 information returns. The taxpayers blamed the preparer, but Tax Court said no. This was not a case of reliance on aberrant advice--they had a duty to review the return for accuracy.

>>talk to the collection agency and fax them the -0- returns, this should solve the problem<< Apparently the final assessment of penalty was made before the returns were filed. You will have to go through whatever procedures the state has for abating penalties. It may indeed be too late, at least without researching state rulings. In any case, according to the instructions to Form UI 3/40, there is a minimum penalty for late filing regardless of wages paid.

>>the way it was last century<< Sorry, my previous post was a bit too sarcastic. I get frustrated at questions about what the taxing agencies will do, without considering the facts and circumstances involved. Those things you think are not relevant are at the CORE of the state's position. When they say the basic factor is how much control the corporation has, they aren't talking about the doctors' professional skills. They mean the business relationship. No doubt the corporation's lawyer drew up very fine contracts, but now it's time to consult with a labor attorney. The tax issue has already been settled.

>>each week he pays the doctors, what they earned<< You didn't think it was relevant the way they are paid, how their schedules coordinate, and how they present the organization to the paying customers? I wonder what reasoning you thought was relevant, that the state so firmly rejected? By the way, you say the corporation doesn't want the liability. You can't even convince some old government bureaucrat, but you figure the malpractice lawyers will just roll over when they see the "formal contracts etc." Yeah, that's the way it was last century.

>>the amounts included in income in all preceding years in the period<< Although Line 20b is supposed to be carried over to 2012, it can't be the final number because further withdrawals could happen even in 2011. Presumably when it comes time to actually file 2011 and 2012, Form 8606 will have a new section or worksheet to show "minus the amounts included in income in all preceding years of the period." Quickfinder already has one.

>>paying the state opens a can of worms for the feds<< You can avoid that with a bit of planning and excellent documentation. States are notoriously tougher, which is why the IRS generally lets them handle it first as Lion says. The IRS will take any easy pickings when their turn comes, but they don't want to invest anything more. "Cheaper to just pay the state" is a line they hear a lot and they understand it. Heck, they try to get you to say that about their own bill. But now they know it won't cost YOU anything more to fight the bigger federal assessment, because you've already got the complete work-up done. (At this point show them the index to your documentation, with a brief citation of the relevant difference in state and federal law.) That will take care of the last three years. What about the next three? Once you pay the state you must keep going, payroll tax and all. You'd better start planning for the next audit, with all new contracts, significantly revised accounting, third-party documentation like insurance riders, and a TOTALLY different marketing strategy backed by genuine training. Even then, you will never be completely safe. On the other hand, what's so bad about exercising control over the agents that represent the company? The only reason you've given so far is that independent contractors have their own IRA's, which is a pretty lame excuse. I mean, anytime someone falls back on "This is how we did it 1989" I have to wonder just what the real story is.

>>we have a good case under the IRS Guidelines<< Fine, but how good is your case under the Conneticut guidelines? They are a separate, unrelated set of laws. It is possible to be an employee under state law but a contractor under federal law. One does not necessarily imply the other. (In fact, even within state law there can be different definitions. For example, in many states real estate agents are mandatory employees of the broker, but can still file as independent contractors for tax and other purposes.) Here are some of your many choices. 1) Accept the state determination and don't worry about the federal unless the IRS asks. If your payroll service can't figure out how to post a different amount to state wages, get somebody else 'cause it's no big deal. 2) Appeal the state ruling. That takes an attorney specializing in the issue, who should be easy enough to find. Expensive, but maybe the pension managers would help you out since they may be the ones with the most to lose. 3) Get a jump on the IRS by initiating the federal inquiry yourself. And if you really want the workers to look independent, I wouldn't let what you call "the employer" pay any state assessment related to the workers. Doesn't the written contract require the workers to act as independent contractors, and indemnify the company for any costs incurred by a breach? 4) Or, gee, how about changing procedures to conform to state law? Then you can pay the small back assessment and move on.

>>purchased a suv to use for his personal training business<< Did it come with training wheels? Otherwise, I agree with OldJack. In any case, it is capitalized. The depreciation component of standard mileage is 23 cents.

>>I have an exact match for SS card<< Apparently you don't have any with Hispanic surnames. Sometimes even Social Security doesn't have an exact match with the SS card. Surname has a different meaning in some other languages.

>>One of mistakes was employee name spelling<< Follow the instructions to Form W-2c at My link.

>>for nothing less than not being notified<< Well, technically it was for more than trying to blame the company--a taxpayer is responsible for his own obligations. Maybe he should just close the whole account since he thinks they aren't paying attention to business. Meanwhile there is nothing you can do about the past, so don't worry about it. You can deal with the IRS if and when the question ever comes up. (Unless he was self-employed or a 5% owner, the RMD rules and penalties are the same for a company pension as for an IRA.)

>>required to be within a short distance of the hospital.... statement from doctor as to being medically necessary to live in a warmer climate<< This is one of those ancient theories that is so attractive it will never die. It is based on a loophole in the 1939 version of the tax code, long since closed. In the first scenario, lodging is not deductible because it was not primarily for the purpose of receiving treatment in a hospital or convalescent facility. It was only speculative that such treatment might even be needed--and in fact it apparently was not needed! Skillful research and excellent documentation might possibly come up with some minimal support for the deduction in a specific case, but it's a real long shot. Don't bother unless there are some very unusual facts and circumstances. In the second scenario, there will never be any chance at all. The proposed lodging is for general comfort and well-being, not medical treatment. She wasn't the first to think of this scheme, so be sure to bill your wealthy client for wasting your time.

>>one petition for all four years<<

>>one petition for all four years<< See item #3 on the Tax Court petition, "Provide the year(s) of period(s) for which the NOTICE(S) was/were issued."

>>you don't have basis in the note unless gain is recognized and the nature of that gain remains unchanged whether the note is collected or sold<< According to what I linked, "Figure your basis in an installment obligation by multiplying the unpaid balance on the obligation by your gross profit percentage. Subtract that amount from the unpaid balance. The result is your basis in the installment obligation." You then use that basis to determine gain or loss on the sale of the note. All this only applies when you are reporting under the installment method. If you acquire the note by purchase or you are not using the installment method, the note would be treated as a separate capital asset.

>>Stupid and unrealistic<< It is neither. Remember that MACRS dates from the 1980's, when we had quite a different attitude about electronics. The hardware DOES last seven to ten years, but now it becomes "functionally obselescent" in two or three. In other words, it is only our vanity to get the latest upgrade, even though our old phone (or computer, etc.) still does just as well what it always did. There's generally not much tax impact in any case, but if you really need to deduct it over a very short life there are obviously many ways to do so.

>>Now client sells the note << See page 11 of >Pub 537<

>>absent any records<< That's the whole thing! The IRS auditor couldn't care less what you actually use your phone or computer for. All she needs is a taxpayer's good records. Cell phones are no longer listed property, but they were in the year being audited, and so are computers. Unless the taxpayer has a contemporaneous usage log, anything the auditor allows is more than generous.

>>Doesn't he have 3 years from the time it was filed if it was filed late?<< That's right, at least in terms of filing an amendment. Claiming additional refund is a diffferent matter. He can only get back payments made AFTER the original due date of March 15, 2008. See example 1 on page 15 at >>Pub 556<<.

>>Belt, suspenders, duct tape, and staples.<< As I understand it, the IRS will still sometimes take the shirt off your back, but I don't think they pull down people's pants any more. If they try to, I can only recommend the first three things on your list.

In Tax Court Memo 2011-167, a race car driver was denied losses. The court gave an unusually clear analysis of the hobby factors. According to Checkpoint RIA, "Lack of honest profit objective was shown by overall facts and circumstances, including that taxpayer didn't keep books or written records, had no formal business plan or annual budget and expense forecasts, and didn't otherwise operate activity in business-like manner. It was also telling that although he had significant experience in drag racing and did seek advice on how to improve cars' performance, he didn't seek out expert advice on activity's economic aspects; derived significant personal pleasure from activity; and incurred significant, potentially tax-beneficial losses therefrom." The court said a taxpayer must have a good-faith expectation of profit, looking at objective facts more than the taxpayer's statement of intent. One argument the court did not accept is that assets will appreciate in value. It said the increase in value was not due to success in the drag racing activity. The court even tossed out all his receipts because he had not used them "as a management tool to reduce expenses or increase profitability." Interesting reading.