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BK-CPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 933
Experience:  Owner of a CPA firm
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I am researching Texas sales and use tax guidelines client

Customer Question

I am researching Texas sales and use tax guidelines for a client who may have been applying the guidelines incorrectly and may need to file amended returns with large amounts owed. I am trying to determine the options available.
JA: Thanks. Can you give me any more details about your issue?
Customer: It appears the sales amounts were understated and the business has underpaid as much as $10,000 per month for over a year. They are currently filing quarterly and should be filing monthly. I communicated the discrepancy to the client this week and I am wanting to advise them properly regarding the best way to come into compliance. For instance when/if they file their next quarterly return accurately this may raise a flag since the amount will be significantly higher than prior returns. Also, I am concerned regarding their ability to pay the amount outstanding and want to give proper advise about how to approach the state about the issue.
JA: OK got it. Last thing — Tax Professionals generally expect a deposit of about $32 to help with your type of question (you only pay if satisfied). Now I'm going to take you to a page to place a secure deposit with JustAnswer. Don't worry, this chat is saved. After that, we will finish helping you.
Submitted: 1 year ago.
Category: Tax
Expert:  BK-CPA replied 1 year ago.

Hello and thank you for your question.

Step 1 is to make sure they have been underpaying. In other words, are the things you are asserting might be taxable really taxable?

Step 2 is to file amended returns.

Step 3 is to set up a payment plan for the unpaid balance if your client can't pay it immediately (you can generally get power of attorney and do this for your client if you like).

Obviously, they'll want to file correctly going forward too. Whether it triggers suspicion is irrelevant.

Your question is what options are available, but there really aren't any... Your client can elect to not correct the prior returns and run the risk as the case may be. That is up to your client, but it seems like a case where you would recommend amending. Your client can also choose to keep doing things incorrectly as the case may be. Again that is up to your client, noting that you cannot prepare and sign the returns with these substantial understatements if you determine that to be the case. You can simply offer to prepare them correctly or not at all.

Other than the above, I'm not sure what else to tell you, but if there is something else you want to discuss let us know. If I'm online I'll do my best to answer, or if not, then I would expect another expert here to help you in my place.

Customer: replied 1 year ago.
Thank you. ***** first discovered the problem I read the Texas sales and use guidelines for landscapers to confirm my understanding of the regulations and the client is understating revenues. When I communicated my findings to the owner I learned he has had this issue before. He closed that business and reopened another and is still under reporting and underpaying. He seems to want to fix his problems going forward. I appreciate your response.
Expert:  BK-CPA replied 1 year ago.

Usually the owner is held personally liable for unremitted sales tax because it is a form of trust fund liability, so closing a business to get out of it generally doesn't work. I'd be wary of dealing with a client that intentionally tries to cheat the system, so be careful.