The Q Word

Comments and Advice to Help Improve the Tax Returns That We Prepare

April 7, 2014

They battened down the hatches, but the hatches wouldnt hold. Bob Dylan, Tempest

OH YEAH, HERE THEY COME!

This time of year, its not just the quantity of clients, but the quality of issues that is a challenge. A client who hasnt filed yet probably has a reason. The bad news is that after a bit of a lull in March, tax sites get really busy. The good news is that by April volunteers and other site staff are more experienced. So batten down the hatches, gird your loins, hitch up your trousers, take a deep breath, and forge into the last week of tax season. Heres some general advice: Find the nearest Low Income Taxpayer Clinic, and have their contact information available for client referrals. They can assist with a host of tax issues and represent clients involved in controversies with the IRS. Keep your cool. In fact, keep everybodys cool. This is the time to pour on the volunteer support: bring luscious cookies, talk up the end-of-season party, keep a stream of gushing thank yous flowing, and, most of all, provide lots of support. Make sure that experienced, knowledgeable staff is on hand to answer questions and just generally help get volunteers out of a jam. Bring out the A-team. Remember, you cant help everybody. They sold their business, had a bankruptcy, adopted a couple of kids, the house was damaged by a tornado, and then it went into foreclosure? They may be nice people that your site has helped for many years. But not this year. When its out of scope, suggest they find a tax professional. What are you likely to see? I was at a tax site last Saturday and heres what I encountered all pretty typical of April clients: lots of income with no withholding TaxWise doing crazy stuff self-employed clients with no records Form1099-MISC for an employee multi-generation family with confusing situations men in tears over the big balance due lots of prior years that had not been filed lots of prior years that had clearly been prepared wrong a qualifying child that the family knew had already been claimed by dear old dad

The Q Word National Community Tax Coalition

April 7, 2014

Page

BALANCE DUE There are really three parts to this. 1. Break the news. For me, this is the most difficult. Remember, its not your fault. Always emphasize the importance of filing before April 15. They will only owe more in late filing penalties if they delay filing. 2. Discuss prevention. This means analyzing how they ended up owing so much and then making a plan to prevent the same thing for 2014.This could mean preparing a Form 1040ES to make quarterly estimated tax payments or advising the client on how to revise a W-4 to increase withholding. Sometimes a balance due is just some fluky occurrence that wont affect subsequent years and no adjustment for the current year is needed. But its still good to review W-4s and the overall picture for 2014. 3. Discuss how to pay. IRS has lots of information for people who owe, including how to get an online payment agreement. If the clients situation is dire, pull out that low income taxpayer clinic phone number. They can help clients negotiate payment and settlement with the IRS. TAXWISE This is what I saw. I dont understand it. It may be some kind of one-time thing, but watch out. The preparer told the client the amount of the balance due and then printed out the return. The client noticed that the amount owed on his tax return copy was different than what the preparer had told him. When we compared, we found that the PDF created by the TWO printing function did not match the correct return. Crazy! After much consultation with a TWO expert, the only way we could print a correct return was by overriding the incorrect fields entering the same numbers that were already there. Then we recreated and printed the PDF. Finally, we had to go back and un-override to e-file. Did it work? Yes. Was it pretty? No. Please note that this is not any kind of official advice on how to handle this problem. The issue will be reported through channels. Meanwhile, you have a seat-ofyour-pants method that should work if you find yourself facing this bizarre problem. PRIOR YEAR RETURNS Humans! They procrastinate and dont file for years and when they do, they come late in the season. If it is a 2010 refund return, the important thing is to get it filed by April 15. It can still and, possibly should - be filed after April 15, but in most cases the client will not get a refund of an overpayment when it has been more than three years since the return due date. IRS has a new online system that makes it easy for clients to get transcripts for old tax years. I tried it recently and it is slick. There are many hoops to jump through during registration with questions like, Did you ever live at such and such address? Have you ever had a car loan with XYZ Financial? But once youre in, you get immediate access to transcripts. For non-filers unsure of their filing history, look at account transcripts. That will reflect whether someone filed, as well as any payments that might have been made with extensions. Income transcripts list all income that have been reported to IRS, such as W-2s and 1099s. Sometimes it is discovered that a prior year return was prepared incorrectly. If correcting the return will create an overpayment on a timely filed 2010 return, in most cases that must be done by April 15 to get the refund. If making the correction generates a balance due, the client should also file an amended return. Tax sites cant force someone to file an amended return. We should, however, explain the error to the client, explain that an amended return should be filed and the tax paid, and, when possible, offer to prepare the Form 1040-X. FORM 1099-MISC

The Q Word National Community Tax Coalition

April 7, 2014

Page

The client had about $10,000 in box 7, nonemployee compensation. He worked as a cashier at a gas station. It seemed clear that he shouldve been treated as an employee and the selfemployment tax was about $1,500, creating a balance due on the return. His wife wanted

him to report the payer (Form SS-8). But the client still worked there and considered the owner to be his friend. Being unable to resolve the matter then and there, the return was put on hold and the couple left for what was probably a long ride home. Another client with a Form 1099-MISC was self-employed but had no records. After a brief discussion, I could tell that he had deductible business mileage. But I almost lost my cool. Him: I drive a lot for work, but I dont have any receipts. Me: You can use the standard mileage rate. Your commuting getting to and from work is not deductible. The rest of your driving during the workday is deductible. Him: OK. But I dont have any numbers. Me: Tell me about how much you drove on a normal day. Him: I made lots of stops every day. But I cant give you any numbers. Me: On a typical day, how far was it to your first stop? Him: I usually had to drive out to the suburbs. But I cant give you any numbers. Me: (I almost screamed: Pity, because numbers is exactly what I need! Then I paused and took a deep breath) For example, how far is it from your home to one of the stops? When a client has no records, do your best to assist in conjuring up some reasonable figures. But, remember: All reconstruction estimates must come from the client. If the client is not cooperative or there is really nothing to build on, you dont have to prepare the return. When the return is finished, make sure that the client understands what is on the Schedule C-EZ/C and, moreover, that the client knows what records need to be kept for the current tax year.

QUALIFYING CHILDREN MESSES The client was a 20-year-old girl who was not a student. She had earned about $24,000. Her disabled twin brother lived with her and provided his own support with social security disability income. She should claim her own personal exemption and claim her brother as a qualifying child for EITC. The problem was that she knew that her father who had lived out of state all year had already claimed her for everything; presumably as a dependent and for EITC. When it was all explained to her - even the large increase in her refund she didnt want to get her father in trouble by claiming her own exemption. She left without completing the return, planning to come back after having an uncomfortable talk with her dad. The plot thickens: The girl and her brother lived with their mother (Are you following this?) who also received social security and had a little wage income. The girl didnt know if mom had filed yet or not. So this family has lots of issues: the daughter erroneously claimed by her dad, an apparent tie situation between the daughter and her mom, and goodness-knowswho to claim head of household. The tax site asked for mom and daughter to return together. In these situations it is best if all the relevant family members can come together and, hopefully, the tax preparer can sort it all out in a reasonable way.

So, keep your cool, get plenty of rest, stay hydrated, and enjoy the last week of the filing season.
Picture reprinted from USA Today
The Q Word is written to provide commentary, information, opinions and observations from a grass roots perspective to all preparers, managers, and coordinators that are involved in free income tax preparation programs. If you have any suggestions for the Q Word, or would just like to submit comments, questions, praise, or bitter criticism, please e-mail: Barbara DelBene at bdelbene@tax-coalition.org

The Q Word National Community Tax Coalition

April 7, 2014

Page