Thursday, May 10, 2012


When you receive your finished tax returns from your tax preparer don’t just sign and submit the return.  it is very, very important that you carefully review the return first, and ask the preparer about any items you do not understand.
The letter that I include with all finished tax returns I have prepared includes the following statement –
Please examine these returns carefully to be sure all items of income and deductions have been accounted for properly.  You are responsible for all the information reported on the returns.  If you find anything that is not in order, or that you do not understand, contact me immediately.” 
It also states –
These returns are subject to review and examination by the IRS and appropriate state tax agencies.  I accept responsibility for the clerical and mathematical accuracy of all returns I have prepared.  The burden of proving the facts reported on your tax return rests with you.”
A tax season story from NCPE Fellowship Executive Director Beanna Whitlock (who has been preparing 1040s for slightly longer than I have), which appears in the Fellowship’s May newsletter, highlights the need to understand what is being claimed/deducted on your return.
She was approached by a couple when they received a written request from the IRS for information on deductions and credits claimed on their 2009 and 2010 tax returns because the person who had prepared the return was “unavailable to talk to them”.
The returns included an adjustment to income for tuition and fees and the full American Opportunity Credit – even though “neither taxpayer went to school in 2009 or 2010”.
It also included an energy credit for solar power – even though “no energy improvement had been made on their home during 2009 or 2010”.
And each taxpayer had a separate Form 2106 to claim business mileage.  Beanna points out – “When I asked how they used their auto for business they said they went to and from work”.
The taxpayers received refunds for 2009 and 2010 only as a result of these erroneous items.
Beanna tells us –
I asked the taxpayers to go back to their return preparer and ask why he had prepared the returns with the erroneous credits.
The response from the return preparer was ‘You should have purchased our audit insurance and we would have represented you before the IRS.’”
The taxpayers had paid for a Refund Anticipation Loan, but not for the “audit insurance”.
Clearly the tax preparer, in this case from “an independent firm with 7 locations in the city”, was a crook.
But, while Beanna says “It was clear these taxpayers were innocent in the preparation of their return”, this is not entirely true.  They were apparently happy to be getting refunds and did not look at the return they were signing. They are certainly not without some responsibility in this situation.   
A review of the bogus return would have shown the taxpayers that deductions and credits were being claimed for expenses that did not exist, at least in the college tuition and energy credit areas. 
One would think that, seeing a deduction on the front page for tuition and fees, and knowing full well that they did not incur any such expenses, the taxpayers would ask the preparer what this was about.  Or am I giving the taxpayers credit for too much intelligence?
The moral of the story – carefully review your finished tax returns before sending them off to Uncle Sam or your state.  As I state in my client memo - You are responsible for all the information reported on the returns!
A final word of advice on the topic-  If you do indeed find something on a return that you do not understand do not call up the preparer and tell him/her, “You made a mistake on my return”.  Simply say that you have a question about something reported on the return.

1 comment:

Mark Randall @ tax relief said...

Checking your tax returns for mistakes is important. Many people who don't review them, will never know if the IRS made a mistake or not.