How would you respond?

[Jack from Ohio]

Second year client. Their return will be prepared in the next two days. Here is the e-mail we just received...

"Hope all is well! I wanted to touch base and see how things were coming with our tax return. I spoke with one of your awesome secretary gals and explained to her that L_ _ _ _ _ and I are trying to purchase a new home. However, our lender is wanting to see our tax return before we move forward. He has also requested that he gets to see the taxes before they are actually filed with the IRS in case any "adjustments need to be made." Is there some sort of work sheet or something that he can look at once you're done, but before we file??"

[jasdlm]

I had this happen once (client took the return to the banker before returning the 8879 - I was unaware the banker had asked). You would not believe the changes the banker recommended? I was gobsmacked and told the client that the banker was asking her to commit fraud. She fired the banker, and I still do her tax return.

[JohnH]

I'd ignore the email, or else just reply that we will let him know when the return is ready. I wouldn't even acknowledge the reference to the lender. If he asks about it later, I'd just tell him he is my client, not the lender, and that I don't have conversations with lenders.

There is some sort of worksheet the client can look at. It's called the tax return. The client does have the option to review the return before you e-fling it. But if he comes up with any "adjustments" I'd tell him there will be an additional charge for the changes (that is, assuming the "adjustments" are valid). If there were any questions in my mind about the adjustments, I'd do what jasdlm did.

[ILLMAS]

Your client is probably working with a broker, very common practice back in the day. I would just respond back saying something like your tax return would be a projection for 2014, but what really is taken into account is YTD wages, debt to ratio and your credit history if you are going for a stated loan you'll end up paying a higher interest rate.

[Yardley CPA]

I provide my clients with a "draft" copy of the completed return (including a copy of the 8879) normally via a secure email (unless they choose to come in personally). I normally call and go over the return and ask them to also look it over and then, if all looks okay, please sign the 8879 and return it to me.

It's their return and since nothing is filed yet, they can do whatever they want to do with the draft. If that includes taking it to their banker, so be it. They can come back and ask me any question they may have or ask for changes they feel are necessary (even if those changes were suggested by the banker.) That doesn't mean the changes would actually be made to the return. Ultimately, my signature is reflective of my belief that the return was prepared accurately and abiding by IRS regulations.

I personally wouldn't get overly caught-up in the nature of the email they sent you, Jack. They requested a copy of the return and I would provide that to them.

[Pacun]

I have seen returns prepared by other tax preparers that have about 27K is schedule A deductions. Their salary is 42K and they are first time home buyers. So the bank has told them to go to another preparer because too much deductions. I like this type of clients because they say that the banker told them not to use itemized deductions. I have had 3 clients in a very similar situation, so based on my experience, I would love to send a return before filing it because the banker will tell them that I am a good preparer. It is amizing how our clients believe other people but don't believe us.

[JohnH]

Will the banker tell them you are a good preparer, or will the banker tell them their preparer is preventing them from getting the loan? :)

[Pacun]

Will the banker tell them you are a good preparer, or will the banker tell them their preparer is preventing them from getting the loan?

The banks are paying attention to the itemized deductions and to disposable income. They didn't qualify for the loan because the other preparer itemized deductions and in order to make 42K, they spent 27K related to their jobs. So the banks prefer standard deductions. In any event, very few people qualify to itemize without a home, correct?

[JohnH]

The banks shouldn't have any sort of preference, other than a preference for the facts. If they spent $27K related to their jobs, the bank should certainly want to know about that. But $27K related to one's job would not be itemized deductions - it would be business expenses. Any banker who doesn't want to know about that is a sorry excuse for a banker. (But I also think we may be combining bankers and loan brokers in the same conversation - they are different animals. The one thing they have in common is they generally know very little about taxes).

[RitaB]

There is some sort of worksheet the client can look at. It's called the tax return.

You are so right. And who are we to argue with the attorneys in Washington? I had a couple one time looking to buy a business, and they wanted me to review the paperwork the would-be seller gave them. Oh, it was rosy. I told them to ask for the tax return. Not nearly as rosy. Pretty stinky, actually. I explained that if you add back depreciation, these people told IRS they made about 1/3 what they told you. They are either lying to you or IRS, or both. Couple thanked me, bought the business anyway (cause people do what they want to do, have you noticed??), lost money for two years, and went back to their day jobs.

[Pacun]

Johnh

All of them want to know disposable income. It is obvious that someone with 27K in job related expenses making 42K will have less disposable income than someone who makes the same amount and uses the standard deduction. That's all they care and I am fine with it.

[joanmcq]

Of course if the 27K in employee expenses or whatnot is a bunch of made up stuff, the taxpayers need to know that too!

[Richcpaman]

Jack:

A suggested reply for you:

Client:

Please have the broker send over his proposed loan package for you. I would like to propose some "adjustments" to THOSE documents before you agree to anything.

Signed.

Jack.

Have him send THAT one to a broker.

Also an invoice for the tax prep, and the "adjustments" that the broker can pay.

Rich

[Pacun]

Of course if the 27K in employee expenses or whatnot is a bunch of made up stuff, the taxpayers need to know that too!

Yes, I agree with you... the IRS should send them a letter. DC audits returns without home mortgage that is above a certain percentage of deduction vs income. This one for sure wouldn't pass DC scrutiny.

I was hired to prepare this year's return, not to requestion my client on his previous years expenses.