Preparer Mess Need Some Advice

[Terry D EA]

I usually get to unravel some mistakes made by my local HRB every year. Now, this is one that I need to bounce around a bit. I previously posted some of this as part of a Ponzi-scheme which there is still a portion of. The preparer works from home, uses HRB online software, and was trained by HRB (entry level courses). When problems or questions arise, then HRB gets a call and gives advice. Not too bad so far. But.....

I was given permission from the TP to call the preparer and discuss the depreciation schedules and how the Ponzi scheme was handled which is where I got the information regarding the background of the preparer. The preparer stated depreciation claimed was using the 200DB method and there were 21 years left. Actually there is 20 years remaining andI asked if SL 27.5 years was used and was told no. I have no idea of what they did as apparently the HRB software doesn't produce a depreciation schedule nor was there a form 4562 included in the client's copy. When depreciated properly, there is a total of $110.00 difference in deprecation claimed and what should have been claimed. I tend to think the person had no clue about depreciation and I don't know where the figures come from that makeup the difference. I know how to correct this using the 3115. No problem with this.

After a considerable amount of research, the Zeek Rewards Ponzi-Scheme was deemed criminal activity and there were court cases involved as well as prosecution. So, no problem here determining if this was a capital loss or a theft. By it's very nature it is a theft and must be reported on Sch A. Here is the problem. The loss was realized or known by the TP in 2012. The preparer has reported the loss as a capital loss labeling it as worthless stock on Sch D taking 3k per year. The total loss is 11K. The TP received third party payments toward the loss in 2015 and when the math is done, there is a 451.00 gain to be reported this year if you follow the capital loss. My confusion is how to handle this. If I follow the rules from two different revenue rulings regarding reporting theft from a Ponzi-scheme, I would have to amend back to 2012. One of the rulings references a safe-harbor method for the TP who has been victimized but I can't see anyway to use that due to the capital loss reporting already in place. If I report the theft/loss on Sch A in 2012 which would result in a refund they cannot get due to the statute of limitations to claim a refund. If that loss could be used to repay the years moving forward it may all come out in a wash except having to report about 2600.00 gain in 2015. This amount is what was received as payment from the SEC in 2015.

One approach is to ignore the past, report the gain in 2015 and send them to HRB to get this fixed but I am not sure I can legally do that. Any help or guidance here as to how to approach this will be greatly appreciated. I am tossing around the idea of contacting the practitioner priority line to inquire about where to go for assistance.

 

[Pacun]

Sometimes intent means a lot. What do you think the intent of your client was when he/she came to your office?

If the intent was to hire you to prepare his/her 2015 taxes, please do so correctly. If the intent was for you to review his/her taxes, review them and make suggestions and send it back to HRB.

Of course (legally) you can prepare 2015 correct and suggest to go back to HRB (or whoever) to make the corrections after you explain the consequences of his/her actions. It is legal for you to say: I can prepare 2015 taxes correctly and suggest her to go somewhere else to have her taxes correctly. You are busy right now and then you will take a long vacation, aren't you?

 

[Terry D EA]

Pacun you are correct with some of your responses. Yes I plan on taking a vacation and am planning that right now. After mulling this around, I can prepare the 2015 correctly and legally using the payments they received this year as taxable gain and then send them back to the original preparer who can deal with the wrong advice received from HRB. Also, I will give them what I will charge to correct these filings, how it affect them and let them decide.

I was highly recommended by a very good long time client. So, I am assuming their intent was to have their taxes prepared in the same way as usual. I asked for the 2014 year because of rental property involvement and found the other mistakes.

[joanmcq]

HRB does have depreciation schedules, but the client has to push to get them. I've had to do as much for clients I've gotten from HRB.