BulldogTom

Mike, I bought my first home under a program similar to what is described by Gene, except it was not a gift but a loan. It was basically a piggyback loan of the 20% down payment. The program was called DAP - Downpayment Assistance Program - and was intended for first time homebuyers. Worked a miracle for us as I was able to buy a new home with good credit and closing costs while I was still a senior in college. It sounds like there is a private group or foundation in SoCal that has attracted the attention of the IRS and your client was linked to them in some way. Has your client bought or sold property in the last couple of years? Is it possible that there is some SS# mix up? Could this group have reported some "creative" items on a closing statement where your client was involved in the transactions? I would advise the client to give you a power of attorney and stay out of any conversation with the IRS for the time being. You talk to the IRS and then advise the client if he needs the services of an attorney or if it is something the client can handle. Something smells - I would tread very lightly through this. And be careful not to make the client's problems your problems. Good Luck. Tom Lodi, CA

Bill, I want to start a new thread so it does not get buried. I just want to make sure I understand your post earlier. You got MAX for $695 plus S&H? Were you on Max last year? Would you mind posting the contents of the e-mail that you got from ATX (hopefully with a salesperson's name)? That is a huge discount, and if the rest of us can get on that offer, ATX will have a lot of renewals. I have not renewed, but I will for that price. BTW, ATX cannot stop you from posting that e-mail here - because they don't own the site. Isn't that cool? Maybe they will regret their decision to cancel their board. They could have deleted posts like this in the past. Tom Lodi, CA

You are in our prayers. Tom Lodi, CA

I appologize for my unclear post. I should have said "if the card is in the name of the owner and the organization is a corporation and there is mixed use, I would shy away from putting the CC on the balance sheet." My point was (1) if the entity is a proprietor, and the card is in the owners name, I have no issue with putting it on the BS and recording each transaction as either an expense or capital draw, (2) if the entity is a corp and the card is in the owners name, but strictly used for business purposes, I have no issue putting it on the balance sheet, and (3) if the entity is a corp and the card is in the name of the owner but is mixed use, I prefer not to put the card on the balance sheet, opting for recording the business transactions from the card usage as a transaction between the owner and the corporation. My assumption was always that the card was in the name of the owner, and I was approaching the question from that assumption. That is the problem with quick answers to questions, we sometimes think that what we think we said(or typed) is what will be understood. Tom Lodi, CA

Deb, Is this a sole proprietor? If so, are there any other expenses on that card? If the card has no other charges that are personal to the owner, set it up as a credit card in QB, and just post the payments and interest charges to it . If the card is being used for mixed purposes (business and personal) it will make the interest calculation manual at tax time, but I would still set it up as a business credit card, post all the transactions, and show the personal ones as owner distributions. If it is a corporation and there is personal uses, I would shy away from the credit card showing up on the balance sheet and record a loan from the shareholder and document it. Have the corp pay the shareholder and the shareholder pay the credit card. My 2 cents. Tom Lodi, CA

Bonnie, Good for you. Nobody likes insurance companies, so laying the blame at their feet is a good move. I too am sick of the government bailing out people who make stupid mistakes. And then you see the President going out and proposing to bail these people out at taxpayer expense. 2 years ago, I could have "qualified" for and gotten a loan on a 600,000 home. I could have put no money down and made teaser interest only payments for 2 years. If I had known the government was going to bail me out when the rates reset and I was over my head, I would have done it. Instead, stupid me, I bought what I could afford with 20% down and a traditional mortgage. Now the guy down the street in the better home with a reckless streak is going to get ahead. Makes you want to just take all the cash from all the credit card offers you get in the mail every day and head to Mexico for a margarita. Responsibility is not paying off in America today. Tom Lodi, CA

I feel for you. I have a client that I went down this road with. My advice is DON'T DO IT. You will get request after request to rewrite the letter to the broker's standards. I may now have lost my client because the last time the broker called and asked for a letter, I would not change the wording and she hung up on me. They will try to tell you that it is just a formality that the lender is asking for verification that the return was processed by you. Then they will try to get you to make statements about items in the return, especially income, assets, and confirmation of business ownership. They will try to dictate the letter for you. BTW, the letter I have given this client's broker says 2 things very clearly: 1. I make no representations about the information in the return(s), as it is the taxpayers representation to me and I do not have any knowledge of the accuracy of the information the client gives me. 2. The letter is not intended to be used as a factor in denying or granting of credit, and I expressly forbid it use in that manner. These two items usually get the second call from the broker, trying to get them changed. It is hard when you need clients, but they put you in this position to help them out. I have resigned myself to losing this client (he has not called after the broker hung up), but I am not going to get sucked into his problems with his mortgages. It ain't my risk, and I ain't taking it on. Good Luck Tom Lodi, CA

I am looking forward to that game tonight. Sorry, I am rooting for the upset. I want to see if LSU is really that good. They lost a lot of talent. I never bet on a highly ranked team with a new starting quarterback. Enjoy the game. Tom Lodi, CA

Not playing the "KittyKats" again. That was a once in a lifetime thing. No way LSU travels to the DogHouse. However, we do get Kansas State at home this year. Playing on the road at Texas A&M and Oregon. It is only 3 days till kickoff. Hope springs eternal in Bulldog Land. Good luck to your Tigers. Tom Lodi, CA

Assuming the 2003 return was timely filed (april 15th or whatever the date was in 2004), taxes were paid, and there was no fraud or gross understatement of income, the statute would have run on April 15, 2007. You should see the same result as the 2002 1040X. But then, this is the IRS we are talking about, and they just might go tilt on this one. ;0) BTW, this is why I don't normally go beyond 3 years back with a new client. I know it is not right, but I ask very vauge questions about anything prior to 3 years old. I don't want to get sucked into a multiyear mess. Tom Lodi, CA

It sounds correct to me. 2002 was a closed year when the 1040X was filed in 2007. The IRS is barred by statute from assessing new taxes. The taxpayer's statute is two years to file a claim for refund from the date the "tax" was paid to the IRS. They are inviting the taxpayer to claim the "overpaid tax" on the 2002 that they don't owe. Tom Lodi, CA

Jainen, >>A very small dig at the poor service of national companies might fit in, but don't get into the blame game<< Is this too big of a dig? At the initial audit, the taxpayer relied on his preparer and the reputation of the national company that prepared his return, not understanding that the preparer was unable to practice before the IRS during the examination. Taxpayer contends the evidence establishing his positions taken on the tax return was not fully disclosed, nor properly presented to the service at the time of the audit. >>Also include a proposed result<< Is this veiled threat to go to Court of Claims to obvious? In the interest of effective tax administration, taxpayer requests audit reconsideration as opposed to other avenues of review available to him. If you grant this request, we believe you will conclude, based on the law and evidence, that the taxpayer is entitled to earned income tax credit. I have the letter down to one page, it starts with who I am and the request for reconsideration. I then include the first paragraph above. That is followed by the law upon which the taxpayer relies and the application of the current facts to that law. It closes with the second paragraph above. Am I on the right track? If you were the lucky auditor who got this letter, would you grant the request? Tom Lodi, CA

I would do it a little different. I would work on the books for this year. When you start asking for all the records of ALL the cash and reciepts of the business, you may find that he is not so keen to "get caught up on past returns". If he is cooperative and you feel he is really giving you all the info, then go back and do the three years. It will look better for you in the long run if the first year you have the client, the books and return are pristine. Might help when you file the back returns with less than perfect data from the client. Just my 2 cents. Tom Lodi, CA

As much as I don't care for HRB, you have to give them credit for their classes. They do an excelent job on the basic course. It seemed to me that the intermediate classes were not so good and the advanced courses were very good. (my wife worked for them for 6 years and took lots of their classes). If I were to hire a new employee without any experience, I would send them to HRB. Tom Lodi, CA

Jainen, To clarify, I did not win yet on 2006. I just succeeded in getting it moved to my local office. I am waiting for the meeting to be scheduled and I have the 1040X on my desk to present the auditor. The issues on that one are pretty simple and I think I have it under control. The 4549 is from the 2005 audit. The only change made is the denial of EIC. HOH was not changed, Dependents allowed, CTC was allowed. I can see nowhere in the record where the IRS made the claim that the taxpayers showed reckless disregard for the rules. The 4549 is very short on the subject. It says something along the lines of "We disallowed Earned Income Credit because you did not prove you were qualified". Again, since the rules changed in 2005, it seems to me that the service just denied the EIC because they had done so the previous 2 years and saw no need to change course. I believe this is an error on the part of the auditor and gives me a fighting chance. As for the other years, I am going to amend 2004 (after I finish 05 and 06 audit). They denied everything on audit in 04, and the taxpayer deserves a better result than what he got (he is the father, paid the rent, provided the food, clothes and medical). If he had good representation, the results should not have been so harsh on him. Even if they deny EIC, he should have gotten the dependent exemptions. I found an issue that I think I can use to amend the return. It may or may not work, but it is something to try. And if the audit reconsideration works for 05, I may just ask for that instead of amending 04. 03 is such a long shot. I don't think I can even get IRS to talk to me on it so I am shelving that unless the IRS opens the discussion. My letter bleeds into page 2 right now. I will consider all you have stated (when someone says something 2X, I ought to listen) and apply this to my letter. I thank you again for your thoughts. Mondovi is definately in play, but I have not seen a Jeroboam (sp?) yet. I went to their website and did not see it listed. I will be taking a trip out to the winery to look in person. Tom Lodi, CA

Jainen, Again I am asking you to make me look as stupid as possible so I can test my argument. This is the same taxpayer that you beat me up about a few weeks ago. I am writing the audit reconsideration letter right now. The bare facts are this: Taxpayer claimed HOH, 2 dep, Child Tax Credit, and EIC on 2005 return. IRS audited for the third straight year. EIC is disallowed. I believe the IRS made an error in that they allowed HOH, Dependency, and CTC while disallowing EIC. The Working Families Tax Relief Act of 2004 brought us the uniform definition of a child, which applies to a qualifying child for the purposes of HOH, Dependency, CTC, and EIC. Please assume that all of the other requirements for EIC are met (SS#, Citizen, Income, etc.) I want to make the argument that since the IRS recognized the children as qualifying children for the purposes of HOH, Dependency and CTC on the initial audit, they therefore qualified for purposes of EIC. Can I make this argument? Is the Form 4549-EZ prima facia evidence that the IRS has "qualified" the children for EIC because they accepted the qualifications for the other items? Thank you again for your time, Tom Lodi, CA

Taxbilly, off the top of my head, I am wondering if you used the tab on the schedule D for sale of principal residence. I used that tab for a situation like yours a couple of years ago and it went through perfectly. Hope this helps. Tom Lodi, Ca

I told you that is what I was looking for. I wanted you to poke holes in my thought process so I could examine the weaknesses in my argument. If I wanted someone to agree with me, I would have talked it over with my 11 year old son. Now I know how I will proceed, and what to expect from the IRS in the process. That is the hardest thing about working on your own, not being able to work through your issues with a colleage. When you spend too much time talking to yourself, you start believing you are as brilliant as you think you are. Thanks again for all your help, and I will look for a jeroboam. But you could help me out by telling me what that is? It sounds like a Jewish King from the old testament. Tom Lodi, CA

No consulting on this one. It was really pretty simple. Kinda like beating up a 10 year old. You don't really want to brag, but hey, the IRS is big for 10 years old right? Now, if I get the same result on the one that I asked Jainen for help on, I would consider sending him a bottle of Lodi's finest. Robert Mondovi Woodbridge Winery is just about 2 miles from my house. I think if Jainen enjoys the fruit of the vine, I could make that happen and send a bottle over the hill and to the coast. To Jainen - I have succeeded in moving the audit to the local office and have prepared the 2006 amended return with all supporting documentation. Just waiting for the phone call to set up the meeting. Tom Lodi, CA

Phone rings - IRS Appeals office on the other end: Appeals officer - "Thank you for the information we requested. We are accepting your documentation. There will be no change to the tax return." BulldogTom - "When will we see this in writing?" Appeals officer - "As soon as my Supervisor reviews and signs off. It should be in the mail by the end of the day." BulldogTom (very dignified) - "Thank you very much, we will return the paperwork as soon as it arrives." BulldogTom (after hanging up the phone) "I WIN I WIN I WIN I WIN I WIN I WIN I WIN - YAAAAAAAAAAAHOOOOOOOOOOOOOOOOOOO" This continues for 5 minutes with much jumping up and down and dancing. BulldogTom to client (very somber and worn out looking) - "It was a very difficult negotiation. The difficulty of the case is reflected in your invoice. We accept cash or check." Client - "No problem, I will write the check right now." BulldogTom (after client leaves) - "Its a beautiful day in the neighborhood, a beautiful day ..... " you get the idea. Tom Lodi, CA

If I remember correctly, when we looked at the system when it first debuted, you could only check on a limited number of SSN's per day. This was a real killer for the industries that illegal or undocumented workers regularly work in. Because of the seasonality of agriculture, and the large numbers of workers that you need to process in a short time, the system was a complete bust for the ag industry. Disclaimer, my experiences with this were in the early part of this decade. It may have changed by now. I think it was around 2002-3? Tom Lodi, CA

Jainen, I really appreciate your input, and don't worry about being too harsh. I know that our "friends" at the IRS are not always going to see things the way we do through our clients eyes. You have helped me more on this than you know, by poking holes into my thought process, and I thank you very much for that. It should be the same process with the IRS, and that is why I put your name on the post specifically. After being poked at by the mighty Jainen, what will a little IRS auditor be able to do to me? Thanks again, Tom Lodi, CA PS, I am under no illusions about this case. But it is significant to the client for a couple of reasons. We need to get 2006 correct so we won't be in the "every year audit and deny any child related credits" mode at the IRS. Second, if I can get any years reopened and the IRS allows what is proper, it will mean about 4K per year in his pocket.

You are right, the Filing Status was incorrect, but that is small potatoes in this, which is why I am overlooking it. The income is so low that HOH versus Single makes nearly no difference. Thanks for pointing that out. Tom Lodi, CA

The problem is, every tax return is properly filed. In 2003, it was proper to "Play King David and split kids" and we all did it to maximize the tax returns for our clients. To not do so would constitute malpractice in my opinion. While the practice was legal, there was a great cry of outrage (I wish we had the ATX archives to go back to right now). That is why the rules changed in 2004. They were further changed in 2005 with the Uniform definition of a Child. The taxpayer has never taken an improper position on his tax return, except for in 2006 when they should have filed MFJ, they just did not know it. The way you are portraying my client is not correct. They went to tax professionals for tax advice and followed the professionals advice in filing their tax returns. This couple did not intentionally file false returns. They were all properly filed. They IRS has denied the taxpayer to claim dependency for his natural born child that lived in his home that he provided since the day the child was born. Show me a form where the IRS lays out the exact proof that they will accept when making a dependency determination? They give a taxpayer 15 DAYS to respond to a letter saying prove this child lived in your house for the entire year or we will deny the dependency exemption and all that goes with it. Have you ever tried to prove a child lived with you all year to the published standard of the IRS? (oh yeah, there is no exact guidance on that, just some "suggestions"). The clients are not the sharpest individuals, but he works hard, and he does what he can to support his wife and 4 kids, one of which is special needs. As for new information, 2003 is hard to get any information, but we will be providing birth certificates showing the the couple as mother and father of one child. I will also present the mother's testimony in writing under penalty of perjury that her other children lived in the home with her and the now step father. In 2004, I have the lease from the landlord listing the children, along with the birth certificates (second child born to both of them in this year) and a local government services agency report listing all income by month for the family unit which names all of them. I have the same information for 2005 and 2006, and medical records showing shots and checkups for the kids. None of this was given to the IRS because the client did not get adequate representation. So please, the clients are not bad people, they just don't know how to prove to the IRS that they have children living with them. Tom Lodi, CA

Jainen, There is an IRS publication 3598 on Audit Reconsideration. I read it, and I am still thinking of going that way. It says in part "IRS Accepts an Audit Reconsideration Request if: (1) You have information that we have not considered previously which might change the amount of tax you owe, or credit you believe you are entitled to." I have never gone down this road before, so I am hoping someone else has. Since the IRS did not have all the information when they made the determination, I think this is my best shot. A very detailed, comprehensive letter attempting to prove that the taxpayer is in fact eligible for the denied credits, complete with supporting documentation, will hopefully get me an audience with the auditor. If any of you have ever tried audit reconsideration, please post your experiences. Tom Lodi, CA