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Ask Dr. Fiona Chen Your Own Question
Dr. Fiona Chen
Dr. Fiona Chen, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 381
Experience:  Former IRS Revenue Agent
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My daughter's taxes were prepared by a CPA. She told him

Customer Question

My daughter's taxes were prepared by a CPA. She told him that she had inherited $12,000. He told her repeatedly that this was not taxable. He never told her that she needed a 1099, nor did she ever receive one. Now the IRS states that she owes $5,600. in unpaid taxes. She is very low income, I believe less than $20,00/year. She does not have any money. Who is liable?
Thank you,
Janet
Submitted: 5 months ago.
Category: Tax
Expert:  Dr. Fiona Chen replied 5 months ago.

Dear Customer,

1) If it is inheritance money, the whole 12,000 is non-taxable.

2) There is no 1099 issued for inheritance money.

3) No one is responsible for the tax. Even if, say in a different situation, a professional makes a wrong advice, the taxpayer is the one liable for tax. The professional may be willing to pay for penalty or usually would go to before the IRS what happened. Relying on expert's opinion is a reasonable cause for the IRS to abate the penalty.

4) Your daughter's issue currently is that she obtained IRS notice for tax of 5,600. If it is income tax, if it is not IRA distribution, we are looking that she had income in that particular year much higher than 12,000.

5) It is more likely than not that: If we assume that the IRS is correct, your daughter owes 5,600. And we assume that your daughter is correct that she inherited the money. Then, it is most likely that she inherited an IRA account, and she took out the entire amount out from the IRA account. If she is younger than 59.5 years old, she is taxed with additional income tax of 1,200. But even so, if there was no other taxable income items not reported on her tax return for a 12,000 income to owe 4,300 tax is very difficult, if not almost impossible.

Hopefully, I answered your main question on who is responsible to the tax.

Regards,

Fiona Chen, MPA, Ph.D., CPA, ABV, CFF, CITP