IRS Notice & Benefit of Hiring a Tax Pro

[athena53]

I've used TurboTax or a competitor for years for semi-complicated returns- many types and source of investment income, and always itemizing deductions. I've gotten nasty letters from the IRS only 3 times and they were easily resolved with a letter I wrote back and, if necessary, a 1040X and any payment due.

1. Forgot to report some money market redemptions. They assumed the basis was zero so of course the amount due was big and scary. I filed a 1040X, included the proceeds and the proper basis, paid small additional taxes due.
2. Brokerage firm merged in early February and I didn't realize the transactions I downloaded didn't include those pre-merger. Oops. I did owe more taxes but not the fault of the software.
3. Rolled over a 401(k) into an IRA when I left the employer. The form I got form the employer left the "Taxable amount" box blank so that's how I completed it in TurboTax. The IRS computer decided it was ALL taxable. A polite letter made them go away.

I suspect that those places that advertise on TV about how they negotiated huge discounts for their clients from the original IRS demands were working with cases like #1 and #3.

[GrayHare]

I've received those IRS letters from time to time. Usually the solution was supplying them some detail I had omitted. The resolutions have always been fair and proper from my point of view. One time when it was a Turbotax error the IRS waived the penalty and I simply paid the correct additional tax.

[ocean view]

Quote:

Originally Posted by Texas Proud How did they go back to 99? You are not supposed to be able to amend a return past 3 years... The only way I know is that you never filed 99 which then still leaves that tax year open to file...

Not to take this too far off topic, but I thought it might be helpful/informative to respond to this comment.

There are a couple of scenarios that I know of where the IRS could audit a taxpayer beyond the 3 yr statute.

1- you are invested in a pass through entity that is under audit for an old year. The pass thru has granted waivers to the IRS to extend the statute to allow them time to complete the audit. When the audit is complete, the pass thru has to amend K-1s to all investors, who in turn have to report those changes to the IRS and state agencies. Your filing of the amended return would reopen the statute for just this item for a new 3 yr period.

2- if you have carryover credits (or NOLs if you are a Corp) that were generated beyond 3 years ago, and are utilizing them in a current year this will open up that prior year return for audit for this item only. The statute of limitations on a carryover item doesn’t begin until the credit is utilized.

3-taxpayer is under audit within the 3 yr statute, but IRS is not able to complete the audit before the statute closes. The IRS will ask the taxpayer to sign a waiver to extend the statute for an agreed to period of time. You are not obligated to sign the waiver, but if you don’t they will assess based on their incomplete findings and it may not be in your favor.

4-as TexasProud stated, if you never filed a tax return, then the clock never starts and the IRS can come at anytime.

[youbet]

Quote:

Originally Posted by Emerson11 I was merely providing food for thought about an additional value received when one hires a professional to do ones taxes.

That seems like an odd statement........ Shouldn't one seek value whenever a professional is hired to do something for you? A carpenter, a CPA, an auto mechanic, a FA, whatever......

Deciding to hire a professional to do some task for you is dependent on your own skills, the benefit you gain from developing the expertise yourself, your own abilities, how much time and aggravation you may or may not save, etc., etc.

Why would the "hire a CPA" decision be any different that any other "hire a professional" decision?

[LOL!]

I wonder if the CPA e-filed an earlier not-quite-i's-dotted and t's-crossed version (i.e., the wrong version) of the tax return, but then printed out the completed final version to give to the taxpayer. I have evil thoughts all the time.

[Texas Proud]

Quote:

Originally Posted by gauss Isn't the 3 year limit only to get a refund?

Why would you want to file for any other reason?


Well, looking... it seems you can file to get a foreign tax credit up to 10 years...

[brett]

We have done our own taxes for the past three years. Lots of changes. We no longer need ta CPA.

But, the work that our CPA did and the advice that she provided (and we followed) has enabled us to avoid a fair amount of tax including these last three tax years.

We would not hesitate to re-engage if we had an issue or felt that we required some updated advice for whatever reason.

Two other items that she advised us on are relevant to this day. If we buy an out of country home her strong or we assist our son and g/f to purchase a home her advice is to speak to her first and get our own lawyer involved.

[gauss]

Quote:

Originally Posted by Texas Proud Why would you want to file for any other reason? Well, looking... it seems you can file to get a foreign tax credit up to 10 years...

If you realized that you did something wrong and you want to set it right with them before they come looking for you at a time which might not be convenient for you to deal with it.

-gauss

[gerntz]

Quote:

Originally Posted by brett We have done our own taxes for the past three years. Lots of changes. We no longer need ta CPA. But, the work that our CPA did and the advice that she provided (and we followed) has enabled us to avoid a fair amount of tax including these last three tax years. We would not hesitate to re-engage if we had an issue or felt that we required some updated advice for whatever reason.

I used TT for about 6-8 years. Then in mid-2000's, our situation got newly quite complicated plus my DM passed & I initially miss-did her returns. Net, we did go to & use a CPA for several years. Complications reduced over time though, but with an LLC I imagine our return is still more complicated than most. But the complications stabilized & I realized I could do the returns again with TT Premier & have for the last five years. No issues.

[Brat]

My DD and her husband are CPAs. They use a CPA with expertise in taxes to prepare their returns.

[youbet]

Quote:

Originally Posted by Brat My DD and her husband are CPAs. They use a CPA with expertise in taxes to prepare their returns.

I certainly support your kids in their decision to use a tax-focused CPA to prepare their returns. But at the same time, it seems so sad that our tax system is so complicated that even folks like your kids benefit from a specialist. It seems like it's not how you live your life that determines your dollar contribution to society, but rather how sharp your pencil is at tax prep time!

[audreyh1]

DH did his taxes when he was self-employed, and did ours once we married and I was drawing a salary. Once we retired, our tax situation became much simpler. We only have investment income. Most of that is downloaded into TurboTax, just a few additional 1099-INTs. We do review it carefully and check against all documents.

I track our income during the year and do the estimated taxes. That’s a little more complicated during years that I decide to use the annualized income method. But I’ve been doing that for a long time now, so I have it pretty well streamlined.

I had an accountant. She decided to go for her PhD and sold her business. The guy who took over gave me all these forms to fill out. When I filled them out I realized it was no different then entering the stuff in a tax program. No other discussion. That was it for having a tax accountant for me.

[aja8888]

My SIL's husband in San Jose, CA was the senior tax partner at KPMG for 30 years in the Silicon Valley. He ran their tax practice in the western U.S. Now retired, he consults with a lot of his own clients on tax matters to stay busy (he really doesn't need to work part time, but...).

I use him to review our return each year. In the last few years after I sold my business, our return was fairly simple, but during the 14 years I ran our corporation, his service was very valuable. It pays to use a pro if you have a complicated tax filing.

[ncbill]

Quote:

Originally Posted by Brat My DD and her husband are CPAs. They use a CPA with expertise in taxes to prepare their returns.

I do the same, thanks mostly to making some incredibly stupid decisions on investments a few years ago.

But in the OP's case what more was needed besides sending a letter & copies of the tax return & 1099 showing the correct basis? Seems easy enough DIY.

[Texas Proud]

Quote:

Originally Posted by gauss If you realized that you did something wrong and you want to set it right with them before they come looking for you at a time which might not be convenient for you to deal with it. -gauss

But they only get 3 years also... I would bet big money that if you made it 2 1/2 and never heard anything they are not coming...


Now I know they can come for longer time period, but that means they have to prove fraud... so if you committed fraud I doubt you would be amending...


However, if you never filed then they can come back for all those years... I had a friend who had started to not file as he was involved with some group that claimed they were citizens of the world and did not have to follow that IRS laws... they went after one guy who had not filed for many years and planned to put him in jail... the lawyer for the guy was one of these also... during the trial the lawyer decided to file 20 years of back taxes


Edit to add... remember, this started when someone said they did amended back to 99...

[Brat]

Quote:

Originally Posted by youbet I certainly support your kids in their decision to use a tax-focused CPA to prepare their returns. But at the same time, it seems so sad that our tax system is so complicated that even folks like your kids benefit from a specialist. It seems like it's not how you live your life that determines your dollar contribution to society, but rather how sharp your pencil is at tax prep time!

Their situation is venture capital specific. .... for example, when Uber goes public they are restricted from selling for 6 months.

[gooddog]

"BTW: it's very useful to create an account with the IRS and download a transcript for the tax year in question. This provides you with a look at your taxes from the IRS's point of view"


How does one go about doing this? Would be great info for the thread.

[jldavid47]

Over the years I've had the IRS send a love letter 3 times claiming I owed more in tax. In each case they were wrong and I sent back an explanation plus supporting documentation and in each case I got a letter back saying "Never mind." It really isn't that big of a deal as long as you have kept good records and are familiar with the tax code as it applies to your situation.

[Corporateburnout]

Quote:

Originally Posted by gooddog "BTW: it's very useful to create an account with the IRS and download a transcript for the tax year in question. This provides you with a look at your taxes from the IRS's point of view" How does one go about doing this? Would be great info for the thread.

As easy as following this link

https://www.irs.gov/payments/view-your-tax-account

[bada bing]

Like most posting, I've gotten a few IRS "love letters" over the years. In one case I made a mistake, in 3 others the IRS was in error. One thing I think I've learned is that it is prudent to e-file returns. 2 of the errors the IRS made on my past returns were from mis-entering numbers from paper returns I had filed by mail. They literally will not fix those without a major tribunal because the person you talk with on the phone has no access to your physical return, only the electronic version they entered.

I do my own returns using H&R Block software. My returns are moderately complex for a mid income filer - I have 1099 employment, schedule C income, depreciation schedules, solo401K, backdoor and mega-backdoor Roth to keep track of. I think there is a benefit in doing my own taxes in being more educated in how taxes work (not that I'm an expert). It is useful to have some understanding how choices I make through the year influence my tax return. I can see the convenience of turning the work over to a pro, but in my case the pros/cons favor DIY.