Have a Tax Question? Ask a Tax Expert
Hello, my name isXXXXX & I'll be helping you today. My goal is to give you a complete & accurate answer that you can understand.
Unfortunately, under normal circumstances, those years are closed. If however, there was an omission of more that 25% of you income, the statute may be extended to a 6 year period.
What years is the IRS inquiring about and what is the inquiry and what is the status of it.
We had not done our taxes for 2006-2010 and hired a firm to do them late in 2011. The firm had some issues...first of all, they did not honor the price we were quoted to do all years. They came back for more money a year later, saying they could not do it for what they quoted. The person who had quoted the price was gone a couple of weeks after he quoted us the price, but we did have what they called, "A No Nonsense" contract. This person was hired by the company to represent the company in such matters, so I told them they needed to honor what we were quoted. However, it took 11 months to get the first year completed! The attorney they had on the job would go weeks at a time without contacting me, ignoring my emails, etc. After a few months of that, I called for her and she was no longer with the company either. For the sake of expediency, we paid the additional $3K...though we made payments on that $3K based on their results...so much when 2006 and 2007 were completed, etc. We had all of our years done fairly soon after that. Now the IRS is requesting info from us re: 2006. I have been attempting to put my hands on what they need, but as I'm doing that, I'm finding huge errors made on our return. It appears that all of the documents requested by the attorney handling our returns were never passed from her to the person who actually ended up doing our taxes. A sale of an investment property was totally not done at all. We had a $94K + loss on property that we put money down on, but when the property values tanked, we could not close, so we lost all of that $94K +. That loss is nowhere on our taxes. We also paid interest to a private party (my dad) of over $24K. That is not on there either. If you can imagine, we received our 2006 taxes with "How to File" instructions 4 different times: 2/01/12, 5/07/12, 9/23/12, and again on 9/24/12. The first 2 were never sent to the IRS because they were obviously not right. The ones of 9/23/12 we sent in immediately. Then I noticed that the $9K plus we had left with the IRS for 2005 was not on there anywhere, so we were not getting credit for that. I called them, they put that on the return, and the next day I got the corrected one and we had to file an amended return. I have a record of sending our 2005 taxes to the first attorney at least twice, but apparently she did not pass any of that info to anyone when she left the company. Now I am finding many other things that she did not pass on either. It almost seems as though she threw everything away when she left. By the time we finally got the taxes on 9/24/12, the IRS had been hot on our heels for almost a year already, ever since we hired this firm to do the taxes. So in Sept, 2012, the IRS required my 401K to be cashed in (I was not eligible to do that without paying all the taxes on it, but they did not care). My account was not much, but was all we had. It was about $26K, with well over $5K of that going to taxes. Now if it had not taken 11 months to get the first year of delinquent taxes done, we probably would have avoided that situation. Fast forward to now...I am finding losses and sales of property that were totally missed on our taxes. I have the cover sheet and faxes I sent to the attorney with the info, and emails telling her I had already sent our 2005 taxes to her twice! There are a lot of little mistakes, like an $11K plus cable bill, which was not a cable bill, but a refi cost and something else that equaled that amount. (They were on the next page because we had no more lines avail on Sched E for rental properties. I had put my info into Turbo Tax and sent the info to the attorney, so on my Schedule E
had the info, it just was not put on our taxes. The reason I asked the questions I did is that I am trying to send the IRS the correct info, but am not sure where to include it. The issue I have had is that this tax place is not accepting responsibility for anything their employees did or did not do. We paid them a lot of money to get peace of mind and put this all behind us. We lost everything when the housing market tanked...millions of dollars. We could not pay our bills. We lost so much in 2007-2008, that we are still having some hold over for other years, to the tune of over $2M loss carryover in 2012. We had 23 rental properties in 2006 in 2 locations. Our taxes are no picnic, but I made that clear to the person who quoted us the price. He told me the only reason it may be higher would be if we had not paid employee taxes, or something like that. We had 1031 Exchanges, and I told him that, but he said that would not up the price. For now, I just want to get the correct info to the IRS. After that, and it is going to take me a while, I am going to do a timeline of my dealings with these "tax experts," along with a list of the errors I have found. I want my money back. I would not trust them to touch any of our stuff again, but meanwhile, we are out $8K, plus the hassle and stress, and the hours I'm spending on this now to just figure out what all they messed up. The IRS is all over us, even though we should not owe them anything. If they are going to charge us penalties, ok...but they have over $30K of our money and we should not owe them anywhere near that amount. I need to know the answers to my questions. But if you have any other suggestions as to how I should be dealing with the "experts" we hired to do our taxes, I would love to hear that, too. I did not go into this blind. I did my research and this company was rated A1. I could go right out and put all of this online about them, but I'd rather get my money back and if I wreck their business, there's not much chance of that. Sorry for such a long story, but it is a long, sad story.
One more thing...if we can satisfy the IRS for 2006, we think they may forego looking at our other late years, because we made more money in 2006 than in the other years. That is another reason why we want things to be accurate. Thank you.
I'm reading your commentary; give me a few minutes;
You asked what we have done so far? I have not even called the tax experts yet. I want to present a case that they cannot ignore and my first priority is to get the IRS the info they want. If the IRS audit office reopens, I may have to share our dilemma with them to some extent, just to hold them off until I can get through the taxes and make all the necessary corrections.
OK, you have quite a history there. First, I'll comment on the easier of the two questions.
Was this a CPA firm that you were dealing with?
You mentioned you were dealing with an "attorney", which is why I'm asking.
It is a firm that deals with situations like ours...late taxes. Has enrolled agents, former IRS people, the attorney was a joke.
So it's one of many of those firms that advertise that they can settle your tax disputes, etc.?
I was on the phone one day with the atty I was dealing with and I told her I knew our taxes were quite complicated. She laughed scornfully and said they were nothing. That was when I knew for sure she was an idiot.
I found them online...I checked those advertising on TV and they were all rip-offs.
Well, obvious this firm wasn't dealing with you professionally either. I take it they aren't CPAs?
The guy who prepared our taxes was...or at least the one who signed them.
It was JG Tax Group
OK, but was the firm a CPA firm? If CPAs were involved, you have some additional recourse that may prove very beneficial to your situation.
Well, one thing that you can do when you are ready to make your claim against them is to write them a letter, by REGISTERED MAIL (not certified mail) that informs them that because of major errors in the tax returns prepared by them, with the CPAs name inserted as the preparer, you would like to discuss the damages that you have incurred as a result of their malpractice. Further, that you recommend that they notify their malpractice insurance carrier of your forthcoming claim and alert the insurance company of the serious & costly errors and omissions from your tax returns, the extended Internal Revenue Service inquiries with respect to the returns and the fact the we are compiling the damages, which effort is ongoing. If we do not hear from you with respect to this situation within 10 days from the date of this letter, we will notify the appropriate IRS office and the Florida Board of Registration of CPAs and request that they conduct independent investigations of your Firm and it's lack of professional conduct with respect to your dealing with us.
or something to that effect
you will get a response to that type of letter
I like it!
Now, as far as the IRS is concerned, what is it that they are specifically asking for at this point and for what tax years?
Right now, just 2006. They want proof of property expenses, mostly. I don't know what they're after. All of our interest on mortgages is from their own records, and when you add in insurance, property taxes, cost of sales, etc, the remainder is not worth their time. We thought of writing them that, but not sure how they would react.
No. that's the last thing you want to do.
That's for them to decide; you have to beat them at their own game; so far it doesn't sound too serious; do you have the records of your expenditures for 2006?
Don't have my mileage written. Also, they asked for info on my selling real estate...do I do it everyday?
Then, it's no big deal; are the numbers for this area on the returns reasonably accurate?
Did not take a lot of miles, though. Yes, quite accurate.
That's great, good news there.
We're due for some!
What they are getting at is the passive loss rules in asking you what you do every day; ie. if you are a real estate professional
Do you generate commission income from real estate sales?
or are you a property manager of your own properties?
IRS requested info for a couple weeks ago; we asked for another 10 days, since I was out of town then. Once I got into them, I started finding major errors. Hoping to get this done, or mostly done, before they open up again.
Do you have a broker's license?
Yes, have commissions and yes, we manage own properties. No broker's license.
They'll be open tomorrow, I'm guessing.
We have managed our own rentals since the mid 1990's. We had 71 rentals in MN.
How are you getting commissions if you aren't licensed?
I'm a licensed sales associate, but not a broker. I work under a broker.
Are your rental properties in florida?
2 that sold in 2006 were in MN. The rest were in FL.
OK, as a real estate sales associate, that's fine
Were they sold at a gain in MN?
We had to write checks at both closings.
Well that doesn't necessarily mean anything, but let's forget that for the moment.
That's why I wanted to know where to put that...include it as basis or on the Sched E ?
Do you report your rental activity on Schedule E?
Yes...we had a total of 23 different properties on there for 2006
OK, you also have a Schedule C for your commissions; is that a loss for 2006?
No, that is a gain
So, I'm at a loss as to why they want to know if you are a real estate professional which is the only reason to ask that question.
Since when does the IRS make sense?
They are going after very little money here. I don't get it.
I would think they would be smarter than that.
How should I handle my tax errors with the IRS? Or should I wait on that?
Do you think the letter to JG Tax Group will get them involved in helping us out w/IRS? Not that they have been much help up to now.
Sorry...too much coffee today...
I'd just tell them that you are a sales associate that you work for a licensed real estate broker and that you are fully engaged in looking for listings for properties to sell; you cover the office as required by the broker; you follow-up on sales leads as you receive them; you assist potential sellers in the best way to present their properties for sale; suggest improvements or changes they should consider; attend seminars and continuing education; as well as many other activities common to the real estate business and marketing of your services;
I wouldn't wrtie the JG tax group now
The IRS has very few really smart people in the field ie. auditors
one question at a time; otherwise I get confused :]
That does not surprise me.
If you are going to make changes to your 2006 return, it has to be done via a 1040X
You can't just do the 1040 over correctly at this point.
You may not need to do anything with 2006;
ok...we already did that once. Can we do it again?
They should have received 1099B's on the sale of those properties in MN and it's funny they aren't questioning why those aren't on your return.
One of them was on return, the other was not.
You can amend them as many times as you need to within the statutory period - 3 years from the date you filed the first version of 2006.
We sent the same info, including prior depreciation, to JG...don't know why one was left off.
We still have almost 2 years then.
You seem knowledgeable, so you know that the fact that you wrote checks at the closing doesn't mean that you simply can add that to whatever loss you may have suffered.
No, but where do I put it? On the basis calculation?
Is that the same place we would put refi expenses?
It isn't necessarily put anywhere but may be included in the computation; to determine the gain or loss, as you know, you are going to take the original cost, (the basis for depreciation + the land) less the depreciation and compare that to the proceeds from the sale, which may in your case involve an analysis of the financing; in other words, you may have included that cost in your original tax basis because you included the mortgage as part of the basis; so when the property was sold, what happen was the proceeds went to the mortgage and your check went to pay the difference; so you've already received the benefit of that via the mortgage interest and original basis of the property.
Is that clear?
so when we refi, we cannot claim the closing costs on that refi?
That's what I want to be sure gets claimed, too.
What did you do with the money or was it just to lower the interest rate?
We were desperately trying to keep our financial heads above water at the time, so used it to pay our mortgages, etc.
Well, if the mortgages were on rental properties, then sure you can claim the closing costs as part of the basis of the properties.
yes, they were rentals, not our primary res
Based upon what you have said so far, unless you have already paid a lot of taxes in 2006, I wouldn't be too concerned about anything except responding to the IRS inquiry as best and as fast as you can. Why, because they've asked about minor things and if you have losses of 2M (as you've said) in later years, increasing that kind of loss is probably just increasing something you'll never be able to use. Better to just get the IRS off your back as quickly as possible.
I'm on board with that! Do you think if we can satisfy them for 2006 they will leave the other years alone? We lost big bucks in those years.
You really need to get hooked up with local CPA where you live in Florida, so you can be properly represented going forward. The issues you've raised so far are just no that difficult to deal with & you don't need some specialized firm that amounts to overkill and as most of them are a bunch of nonsense that really don't know what they are doing & aren't really professional;
As far as your last question; you never know; basically I think it will depend upon how well your returns match up with the 1099 reporting they receive from 3rd parties.
The DBPR in FL is the state licensing board, the same one realtors are licensed with. To threaten JG with that may be good.
our 1099's should be printed in red ink!
It sounds like you are just experiencing what is called a "correspondence audit' which is the bare minimum.
So Stephen...what do I do with that $94K + that I lost on properties we were unable to close?
Hold off on the JG thing until you see where it goes with the IRS
As far as the 94K that's what I was explaining above; if that went to pay off a mortgage, you've already received that benefit as part of the original basis; it's the same as the sale proceeds that went to pay the mortgage; the only thing that could be added to the loss would be any closing costs you incurred as part of the 94K; the interest would be on a 1098 relative to the mortgage & anything else would be on the closing statement;
We did not borrow the $94K. In 2005 we put money down on 4 condo's in pre-construction and then in 2006 the values had dropped and we could not close them. Our deposits were lost.
Remember, the original basis of the property was the cost + whatever & that was financed by the mortgage.
It was a business investment
Well that's a completely different story.
That loss is a capital loss & belongs on Schedule D as you are treating your rental properties on Schedule E as investments;
If info on our taxes the IRS has already is in error, how do we explain that to IRS?
What were you going to do with the condos?
ok...Sched D it is
All new construction was for resale, but we ended up renting most of them out because we could not sell them. I can use these 4 for whatever I want at this point.
Have you ever bought & sold these type of properties in the past & if so how did you report the gain or loss?
Properties here were increasing in value up to $100K between when we bought in pre-construction to when they were done. We did as capital gain
More importantly, does the 2nd version of your 2006 return show enough taxable income to generate any tax that amounts to a significant amount; let's say over $5,000.?
So is the one MN property that showed up on your 2006 return on Schedule D?
no, in fact, we should owe less with corrections/things JG omitted entirely
yes, sched D
I realize that, I'm asking about what is on record now on version 2 of 2006; forget the mistakes for the moment
Is on E for rental income/expenses but D for the sale
I asking about the first question, not the schedule d, I got that answer
version 2 question above?
the version the IRS has now that needs adjustments
That was actually version 4
yes ok whatever; what the IRS has now; what is the total tax expense?
on the 1040?
you don't have any other federal filing do you?
refund of 1903
the tax expense up above
it could be zero or some other positive number
total tax is 7359
ok, that's what I was looking for
So, is part of that tax resulting from a gain on Schedule D by any chance?
OK, so if you amend & put the 94K deposit loss on Schedule D, it should reduce your tax
yes...that's what I'm hoping...then they will have even less to get out of this
Now, you said one of the MN duplex sales was reported on Schedule D & one wasn't; was that a gain or loss?
OK, see that's what I was afraid of; you wrote checks at those closing too (that's what you said at the beginning of your question) and that's what I was answering above; you got credit for that in the original basis; I just got mixed up about the 94K being a completely different thing;
what about the other one we sold? should we report that to IRS?
Hopefully you have some record with respect to the 94K deposit you made; was that made in 2006 or was it just that it was determined that the project was lost in 2006?
Of course the other one should be reported; I'm coming to that...................
lost in 2006...deposits paid in 2005. The JG atty told me to get documentation on the cancels and the fact that they kept our deposits. I have all 4
Let's back up a minute
1. You need to satisfy the IRS inquiry, that's first & foremost.
2. If you see that is going well, then just finish that ASAP & get rid of them
3. If is sounds like they are going to want more & more, then what's you'll need to do is to inform them verbally that in the process of reviewing the information to satisfy their request, you've discovered transactions that your PREPARER omitted from your return, despite the fact that the information was provided to them. Accordingly, you are going to have to prepare an Amended Return on Form 1040X & will probably need professional assistance to make sure it is done correctly.
so when do I tell them about the other MN sale?
One way or another, either after #2 or #3 above, you'll need to get 2006 1040X prepared.
I forgot to tell you...I also found a rental property that was totally left off our Sched E
You don't tell them specifics until you have the 1040X prepared; that's telling them; otherwise you'll never get rid of them.
Ok, that's just another part of the 1040X that will have to be included
4. Based upon all that; the next step is to decide if you want to go after that JG whatever they are group.
We've covered a lot of ground here; what I'll do is to leave my contact information here & as you move through the process, if you want to contact me again, I'll be more than happy to work with you.
I want to, I just don't know if I have the energy. So much stress already. However, if I do not, there will be a scathing review of their lack of service and promises that were not kept
Thank you Stephen. You're the best!
Please remember to rate my response; it is the only way we get credit for our work.
Well, put them on the back burner for now.
yes, I will
If you need to contact me again with any tax or financial questions, you can just ask for "Steve G" at the beginning of your question. Thanks again for using us for your tax and financial questions. You may get a short survey from the site; if it isn't too much trouble I would appreciate it if you would answer it; the survey results are used to rate our performance;
I will watch for it.
Hopefully those idiots in Washington will get something done today.
I've been in no rush, with the IRS looming.
It's hurting a lot of people, though.
Better to deal with them now when they are playing catch up.
yes, I guess so
Don't worry about the IRS
Remember the rating
Really, it isn't worth it;
Is excellent the highest rating?
You'll be fine, it is just aggravating
yes it sure is
YES it is, with a bonus if you feel so inclined