I received documents from IR 866-A to detail that they disallowed child tax credit and EIC for carrying on a trade or business. They adjusted for the S/E taxes, but now they are disallowing the HOH and the Schedule C but she earned the income; trying to report it; albiet no deductions from the gross income as there are no allowable deductions.

Again, for 2009 return....IRS adjusted so client still though cannot claim EIC even though she provided more than 50% of support, etc. that meets the definition. I don't want to expend any more time for this return as I won't be paid, so let it be. IRS says she owes back about 2K of the 5K they gave her as refund in 2009 for 2008.

Fast forward to 2009 again. Do we have to prove AGAIN since they disallowed HOH and child tax credits for these children to take off her 2009 taxes?

Tax court is next step and with her only paying me $150.00 for return, I have spent over 8 hours along with tax return to fix this.

asked 14 Nov '09, 18:52

SandySea's gravatar image

SandySea
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edited 27 Jun '10, 00:04

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stephenweins...
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What was the "reason" for removing the Schedule C income and related attributes as stated in the exam report?

Without the Schedule C income, does she still meet the 50% support requirement?

Assuming they did not disallow the dependent exemptions, how can they reconcile allowing dependency exemptions, but not HOH status?

With regards for the current year, how do you establish doing the same thing when a precedent was set in a previous year not allowing the situation?

I undestand the "time" element, but, what is the "right" thing to do that's in the best interest of the taxpayer?

At this point, since it appears that the IRS representative is incorrect, Form 911 should be seriously considered and is strongly advised!

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answered 14 Nov '09, 19:48

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Brent Berkman
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Yes, she meets the support requirements; without it, no but is due to foodstamps, loans, etc. that are non taxable.

my sentiments exactly; if they are ?? from the precedent for the P/Y and they disallow it, then what to do?

Right thing to do is make IRS not examine/change the return, but of course if the TP wont pay me for my work, then why? When do you just roll over and play dead? I know the return is correct, but how much of my time should be spent assisting them?

(14 Nov '09, 19:56) SandySea

There is no "easy" solution. I have encountered the same issues and will encounter them in the future. Ethical responsibility & integrity aside as they are important, but sometimes there is a moral obligaton to "do the right thing" and help someone!

(16 Nov '09, 13:52) Brent Berkman

If you are a CPA, SandySea, you do have an ethical obligation to continue the engagement until it is finished, or until the client no longer wants your assistance (and lets you know in writing). I'm assuming that since this client is eligible for food stamps, she may be eligible for free tax assistance as well not only from the IRS, but from VITA and perhaps other sources. You could also have your client contact the Taxpayer Advocate to see what you next move should be, in light of this being a continuing issue, and it hasn't been resolved in a prior year. The TA service is there to help resolve these types of issues, and your client could contact them on her own - thereby leaving you out of having to spend more time on the issue. If your client does contact them, make sure she writes down every date and time she calls (or they call her) and what they say. She can have them clarify everything in writing as well, and have it mailed to her. They are very good about this in my area, as I have dealt with my local Taxpayer Advocate on 2 occasions in the past and have had excellent rapport and results with the office.

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answered 16 Nov '09, 07:58

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cpaboise
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Yes I am and yes I know I finish the engagement. The engagement was to prepare her tax return based on information provided to me and if representation, etc. needs to be done, then a seperate engagement would follow. Yes indeed she can also get free assistance for tax returns as well as many of my clients. I am myself going to contact them however as even though I am entitled to let it be, I certainly can't do it and sleep at night. Thanks boise

(16 Nov '09, 12:45) SandySea

This is a good answer, howver, Sandy is correct as it a matter of ethical & moral responsibility and integrity, and I would continue to assist since I simply like to assist people. – Brent Berkman 0 secs ago

(16 Nov '09, 13:53) Brent Berkman

Are you saying she still can't verify the income? What kind of business is it that she can't get come customers/clients to confirm some of her income. This is likely to continue every year until or unless she gets to where she can confirm her income. She needs to keep records including some kind of receipt book where, idealy, she should have clients sign but, at minimum, note their name & contact info. Unfortunately there is alot of fraud in this are. I was among one of the first at IRS to remove income. At the time review tried to argue it even though I established the person was a drug addict who lived off of friends and relatives with little to no taxable income. In the years since this fraud has become more pervasive and this is a common action in audit.
You mention some government assistance. If she was in Section 8 housing most likely she does not qualify for head of household.
Since there is likely no way she can get an attorney for tax court I would let the 90 days pass and file an amended return. If the 09 is not in 90 day status and she can document it request an audit in person to provide the documentation. Sometimes that will get them to drop it.

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answered 30 Jun '10, 19:25

Toni%20McIntyre%20CPA's gravatar image

Toni McIntyr...
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She does not have section 8 housing; the only thing she received is help by family and food stamps. Other than that, the items that she had to pay for she did herself.

I advised her and now it is in the hands of IRS.

(30 Jun '10, 20:41) SandySea
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Asked: 14 Nov '09, 18:52

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Last updated: 30 Jun '10, 19:25