Category: Accounting

Check your tax return before filing

Want to save yourself from thousands of dollars in penalties? It’s important to carefully review your tax returns, even if you pay someone to prepare them for you. In a recent ruling the IRS upheld a substantial penalty despite their claim that they relied on the practitioner for tax advice. Careful review and understanding of  each and every assertion on your tax return is crucial before signing and sending to the IRS.

Stough vs IRS is a complicated case, but the basic premise is that the taxpayer considered a payment for property improvement as a deductible expense. However, the court ruled that this payment was actually rent because it had the substance of rent. For example, the tenant was making this payment to reduce future rents, and the lease provision allowing this payment was in a section of the lease entitled ‘rent’.   After the finding, Stough requested the penalty be waived because they relied exclusively on their practitioner’s advice.

The court has a special set of criteria that must be met in order to substantiate that claim.

“The adviser is competent with sufficient expertise;
The taxpayer provided appropriate information to the adviser; and
The taxpayer “actually relied in good faith on the adviser’s judgment.”

In this case the third criteria was not met as the tax payer admitted that they didn’t review the return or Schedule E (the schedule where supplemental income is reported) prior to signing it. In addition the preparer didn’t discuss the return with them. According to the court unconditional reliance isn’t a defense especially when the taxpayer should have known about these tax provisions.

You must remember you are always responsible for the contents of your tax return. Always take a few minutes to examine the return before filing and don’t be afraid to ask questions. Keep this in your mind and you’ll keep your butt out of court.

Source: Is it rent? That depends on the lease

New ways of thinking vital for accountants, but so are old-school values

Good Day All,

In this article Amato describes how Accountants need to blend “old school” and “new school thinking”. He boils it down to a concept called anticipatory thinking or integrating current trends with your clients practices. For example he relates that an accountant who arrives at a meeting with paper files and folders would be perceived as out of date and not working as efficiently as they could be. So he suggests that accountants actively work to move clients forward, technologically speaking, and show them the benefits of “new thinking”.

Currently I work in a paperless company. So I’ve come to appreciate how that second monitor and Adobe Acrobat make life so much better. I also prefer electronic invoice presentment (EIP) over paper invoices. So I don’t really disagree with Amato here, but I don’t like the idea of automatically discounting an “old way”. In his view, the “blending” is simply retaining the values of old (Honesty, follow through) and using a tablet to present your reports. While these values are important and should be retrained, I don’t believe the methodology should be so easily forsaken. Followers of my site know I always look for new ways to do things, but I try to first understand why the “old way” came about. Sometimes, it hides an important step or rational which might not be obvious especially if the team has become complacent in the process.

One particular Gem is his idea of a “Pre-mortem” before taking on a project. Thinking about how you’ll work it and what could potentially go wrong and how to address these concerns. This is a crucial skill for accountants, and one that we should practice more often. For example before I begin a close, I have a standard checklist of all basic tasks (for example to  reclass existing prepaids, check for new prepaids, record bank fees,  etc.) and then I add any special client requirements (for example a particular work paper or maybe some kind of consolidation entry) and then I try to best plan the timing on these so as to minimize my stress and avoid error.

Do you pre-mortem in your firm or workday? Let me know in comments.

–Derek

Source: New ways of thinking vital for accountants, but so are old-school values