JohnH

Thanks for the recommendation. That goes back to jainen's original suggestion in a sense, but the process of justifying the entry to the balance sheet creates a bit of a dilemma. I've now learned that when someone "diverts" money from a tax-exempt, it is supposed to be disclosed on the 990 as an "Excess Benefit Transaction" to a "Disqualified Person". (I don't like to use the "E" word because it's such a loaded term.) Since the organization was not required to file the 990 in the year this occurred, that may give them an out and allow me to just create a balance sheet as of the beginning of the year, but I don't want to jump to that conclusion. Also, there's the question of where exactly to show it on the balance sheet, because there are very specific Asset categories, including an ominous-sounding "Receivables from other disqualified persons". The plot thickens. My other problem is that the 990 is very strict on accounting for all receipts & expenditures on page 1 and I just sense that bypassing page 1 with an entry directly to the balance sheet might not be kosher. Page 1, Part I is not just a P&L, it's much more. It seems to force you to account for all movements of money into & out of the organization. Line 11 on the 990 (line 8 on the 990-EZ) forces you to account for any Revenue items which don't fall into the other categories, and line 20 on either form is a catch-all which demands an explanation for any other changes in net assets or fund balances. So the front of the 990 requires you to account for revenues, expenses, and asset changes in a fairly comprehensive manner. Maybe I'm over-analyzing this thing & complicating it way beyond reason, but I'm sure glad I have until Nov 15 to work through it. I appreciate the continued comments.

Thanks for the idea. I had considered doing something similar by just counting it as a "Contribution" in the current year & going forward. However, the PTA guidelines for their financial statements are very specific, with essentially every movement of cash thoroughly reconciled, including beginning & ending cash balances, so the whole issue of a book-tax-difference comes to mind. Not so hard to handle on a simple corporate return, but then I started reading all those warnings about the penatlies for minor deficiencies in a 990 and had second thoughts. I've done some more reading on this since my first post, and I found one 990 published on-line which showed it on Line 11 and attached an explanatory note defining it as "restitution", so I'm leaning in that direction. But then I don't know for sure that the on-line 990 is prepared properly - I'd feel much better getting some validation on this forum.

The loss was not reported on a tax filing. I'm told (although I haven't verified this yet) that the total receipts for the year of the loss were less than $18K, so no Form 990 was filed since there would not be a filing requirement even if the $4K is added into gross income of the PTA for the year in which the act occurred. Of course, this also assumes that the $4K is actually the correct amount diverted. This situation is already validating my refusal over the years to get involved with 990's, but this time around I can't side-step it.

I'm helping a PTA prepare their form 990 and have an unusual situation (well, unusual for me). A couple of years back a former treasurer "diverted" about $4K of PTA funds to personal use rather than depositing the money into the PTA accounts. Subsequently, the school and the individual agreed to a restitution plan rather than legal action. In the past year about $400 was received by the PTA as a part of this plan, and there are expected to be similar payments in the future. Where on the 990 should this payment be recorded? My first thought would be line 20 or maybe line 11, but since I've never encountered this before I'd like to hear from others more experienced with preparing Form 990. Thanks for any suggestions.

Sounds like your client took to heart something that humorist Lewis Grizzard said years ago after several failed marriages. "The next time I get the urge to get married, I'll just find a woman I hate & give her my house." BTW, here's an article that offers some perspective on the overall issue we are discussing (aside from the initial question about the letter itself) http://biz.yahoo.com/cnnm/070830/083007_fl...2&.pf=loans

I agree with both of you. Until people are held accountable for their dumb decisions, they will just go right on making them. Unless they are made to feel some pain, there's no incentive to change their behavior.

You're not being too picky. I wouldn't provide any information to a lender that can be obtained from a primary source, especially since he already knows where to go to get the info anyhow. I agree that the lender is just packing his file so he can somehow try to drag you into it if the loan goes south. This is nothing but amateurish CYA on his part, or else the client is desperate and is trying anything he can think of to persuade the lender to give him more money..

I think you should keep holding out for the coffee pot and toaster oven, or maybe the microwave.

I noticed she left $5 million each to two grandkids, provided they would visit their father's grave once each calender year. Bet I'll know where they will be celebrating New Year's Eve for the rest of their lives.

I think your granddaughter's situation is the type that PMI was originally designed to facilitate, by a lending industry which tried to maintain a reasonable balance of risk. But after someone has purchased a starter home, lived in it for a few years & built some equity through principal reduction & appreciation in value, they should generally be able to purchase subsequent homes with a sufficient down payment to avoid the necessity of PMI. What I view as unwise is established homeowners who purchase homes at the outer edge of their ability to afford, betting everything on ever-increasing real estate values to take them out of their shaky upfront decision. They accomplish this either through purchasing the home with PMI or getting these secondary loans to artificially increase the apparent down payment. It's a shell game because when all the debt is added up, their LTV is so high they really have little or no investment at risk. To make matters worse, they often double up on their speculation by financing these purchases with ARM's, gambling on the hopes that they can either refinance or sell before the rate increase buries them. This strategy works fine until there's a slump in housing prices and/or a spike in interest rates (or both simultaneously), resulting in people being a slave to their mortgages or else falling into default and possible financial ruin. The end result is that everyone suffers as the market corrects itself, possibly in an inefficient and ugly meltdown. That scenario is well underway right now - only time will tell if it's a temporary painful correction or if we really haven't yet seen the bad side.

I should have edited my original post right after I finished it. It's ClicktoConvert. Here's the URL http://www.clicktoconvert.com/index.html

Mike: Following a recommendation I received on the ATX knowledgebase earlier this year, I bought "Click2Convert" for password protecting my pdf documents. I think it was considerably cheaper than buying the full-blown Adobe. I've found it to be pretty good - had a few problems related to my unfamiliarity with it but overall I've been very satisfied with it. It will password protect pdf files already created, and will convert word, excel, etc to pdf files and then let you password protect them. It puts an icon on the excel & word toobar so you can activate it from within the document. So "Click2Convert" might be worth looking at, although I'll be interested to hear if others on this forum have better solutions.

Eli: Yes, that's also a possibility. But I'm thinking about all those who signed these dual loans to "avoid" the PMI (split-second, 80/20, 90/10, etc.). Presumably those loans will be a thing of the past and the borrowers won't have any choice but to take the PMI option. I believe high LTV loans will continue to be made, but borowers may not have as many options to avoid the PMI. Technically, I don't think they ever were avoiding PMI- they were just shifitng to a more formal loan structure and getting the tax deduction on the second loan. In many cases, they paid more, even on an after-tax basis, for the second loan than the non-deductible PMI would have cost them. Another example of how the lending industry can easliy confuse the borrower, especially when they just MUST have that house they can't afford.

It's my understanding that a qualified home is a home purchased in 2007 for which the mortgage interest is a tax deductible item. It's also my understanding that the deduction is only available for 2007, which make one wonder why they bothered, unless there is some intent to extend the deduction into the future. Better yet, maybe they will make it retroactive and we can make some $ amending prior year's returns for affected clients.

Just a random thought here. Given the current crisis in the lending industry, and assuming some rationality may return to lender's practices as a result, might it be that we will seee more home loans during the remainder of 2007 which will require PMI?

I think you should factor in a reasonable amount of time to fix the occasional IRS error without charge to the client. To me, this sort of time is an overhead expense - no different than rent or utilities. Since you never know where it's going to come from or which clients it may affect at any given time, it needs to be built into your base rate. Also, no charge for straightening out your own errors (assuming you ever make one). As jainen said, the client really doesn't understand why the error happened and they are not usually in a mood to pay for fixing it regardless of who made the error. Of course, straightening out IRS notices for client errors (forgetting to give you 1099's, W-2G's, etc) should be charged at full rate, plus a premium for having to open up the software for two years back. I don't efile, but in deference to Pacun I think I'll plant a couple of trees to make up for all the returns I've paper filed so far this year. Or will Al Gore sell me wood offsets in place of carbon offsets?

This has been a very helpful discussion, and the link was great. I think I'm going to resurrect an old unused laptop I have lying around & connect a second monitor to it just for email & related tasks.

Based on their recent history, the potential consequences of making their customers mad hasn't entered into any of their decisions thus far.

Good call. Looks like the 3-year-old is pretty smart - maybe she could learn to prepare the returns. If they wouldn't accept the pleasantry of "We're just too busy right now", then my next response would be: "I was just trying to be nice, but since you insist on a straight answer I'll give you one - most knowledgeable preparers wouldn't touch your return with a 10-ft pole. And I'm pretty sure you knew that before you came in my office."

(I posted a response, but then realized you were talking about a different board, so I edited out my comment because Imy reply was irrelevant)

I appreciate the validation of the EIC question, which was my primary concern. I am also intrigued by some of the issues raised concerning claiming the 15-year-old as a dependent. I accepted what the client said with respect to not being able to claim the 15-year-old but am beginning to reconsider. We ran some rough numbers and came up short, but I think I'll suggest that if he wants to provide some more info I'll check it out in more detail. It at least deserves a closer look since they are right on the edge with respect to the dependency issue. Thanks very much to everyone who took the time to provide such a wide range of perspectives & opinions.

My dentist recently retired at a fairly young age, which got me wondering how long one can expect to do the delicate type work they do effectively. It would seem to me that a dentist might need to factor into his retirement plans a high probabilty that he/she would find in necessary to quit once the eyes, hands, back, etc start to give out, possibly well before a normal retirement age. And that, in turn, would factor into what their expected earnings & retirement preparations would be, which directly impacts the fees they charge. I've known a few old dentists, but I'm not sure I'd want to see a shaky hand coming at my face with that huge needle or a high speed drill screeching full blast. So it must be important to them to think about such things, unlike we accountants and tax preparers who can just keep going until we become unbalanced.

Thanks Pacun. Since I don't efile, most EIC clients don't bother coming to me. (or don't bother me by coming - whatever) EIC makes sense to me sometimes and then at other times I lose my train of thought. In this case it's a $1,400 difference and I just wanted confirmation.

This makes some sense to me, but I'd like to get some reassurance since I don't have a lot of experience with EIC. Taxpayer receives $15K disablity income and he & his wife have $22K in W-2 earnings. They have two children - one is a student age 19 and the other child is age 15. Both children lived in the home all year. The taxpayers claim the 19-year-old student as a dependent, but did not claim the 15-year-old as a dependent because this chld receives $9K in Social Security benefits as a minor child of a disabled parent. When I check the box to "Not Claim" the 15-year-old as a dependent, ATX still calcuates the EIC based on two qualifying children. I've done a cursory check and this seems correct, but I'd like to hear from someone with more EIC experience to confirm for me that this is how the EIC works in this situation.

I'm with jainen on this one. While most of us assume that common sense would dictate that we pay additional penalties and interest assessed on the "AMOUNT WHICH WOULD HAVE BEEN DUE" as a result of our errors, and our guarantees should express it in those terms, a careful reading of JH's guarantee doesn't make that distinction. The wording of their guarantee basically says that if they prepare your return and you are later assessed a penalty, they will pay it plus the interest. It doesn't make any distinction between penalties resulting from a balance due and penalties which were not calculated on the original return. I think this taxpayer is definitely due the addtional penalties & interest resulting from the error, and with a little creative pressure on JH they might be able to get them to pay the entire amount.