MTW wrote:

- quote -

I share your pain <grin> , but I think your responsibility is
rather clear under Circular 230. You really can't
participate in preparing and filing a return based on
information you know or have darned good reason to believe
is in error. In that case, I think you need to stop the
presses, call the client, and explain that there's a
problem.

You know that the totals they have provided are not correct
based on what you've seen and a return filed based on that
data would misstate their tax liability, subjecting them to
potential penalties if examined. As well, you cannot, due
to both professional and legal requirements, prepare and
sign such a return.

The client's option is to either hire me to fix the
information (which is going to be expensive) or find some
other way to fix the data. And merely confiscating the
sheets from me and then handing me back the summaries won't
work, since I now know you didn't know enough to properly
classify items.

Clients many times don't understand that hiring us to do the
return does *NOT* equate to hiring us to handle all of their
financial record keeping for the year.

--
Ed Zollars, CPA
Phoenix, Arizona

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Ric Smith wrote:

- quote -

You can prepare a tax-return from summary information the
client provides you, without verifying their numbers with
backup information. We generally scan the detail if
provided, and ask about (not necessarily for receipts, just
"tell me more about...") anything that seems unusual. For
some clients, we have higher or lower standards, based on
our other knowledge of the client's financial
sophistication.

Our engagement letter, which says "By providing us the
information to prepare your returns, you are agreeing to the
provisions of this letter," also says, under the heading
"Your Responsibilities": You will provide us with all the
information required for the preparation of complete and
accurate returns. You represent to us that you have adequate
documentation to substantiate travel, meal and entertainment
expenses (if any), including: a travel log, receipts for all
lodging, and receipts for other business travel, meal, and
entertainment expenses over $75.

A copy of our newsletter on business recordkeeping
requirements and a sample travel log are available upon
request.

Phoebe

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"Ric Smith" <menawach[at]msn.com> wrote:

- quote -

I can't tell you what to put in your letters, but in our
office a 1040 requires a 3 page engagement letter and
business entities (1120, 1120S, 1065, 1041, 990) require a 5
page engagement letter. These letters outline the need for
the CLIENT to keep certain records, including mileage, meal
and listed property logs, it explains that our fee is for
tax prep only (not audit representation, estate planning,
tax planning, or advisory work) - though these are available
for an additional fee - that we MUST be paid and they agree
to pay us either when they pick up their returns or before
we will mail them out; that we don't audit, review or
otherwise verify ANY data the client provides and we take NO
responsibility for their data - though we are available to
answer questions and go over items if they have questions
and additional fees may apply depending on the circumstances
- and a myriad of other things that we've had client
problems with over the years. We also include an information
questionnaire for our 1040 clients - new clients have 3
pages and returning clients get the short 1 page version.

We had a few clients cry about this at first, but over the
last 2 or 3 years they have gotten used to it. I remember
one client in particular who stopped our prep meeting when
he got to the question about having a household employee.
Seems he had one, but wanted to pay her under the table and
not claim it. He wanted to know how to answer the "Do you
have a household employee?" His concern was that if he said
Yes, I'd make him include it on his return and he'd have to
pay more in taxes and if he said NO he might get into
trouble if he was ever caught. I explained to him that the
questionnaires stay in client files for us to use to defend
ourselves IF the IRS ever audits a client about a particular
issue and the client has "forgotten" that we went over these
issues. He stopped the meeting and reschedule for the
following week - seems he went home and talked to his wife,
who happened to be an attorney - when THEY BOTH came back in
the following week, they had a household employee.

If you start using engagement letters and questionnaires I
can almost guarantee that you will be surprised at how many
questions you will get asked by good, long-term clients -
this will open the door for you to do some quality planning
work - and I'd be willing to bet that you will be more
surprised at what you will find out about what they think
YOU are responsible for.

I highly recommend the use of engagement letters and
questionnaires.

Gene E. Utterback, EA

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Ric Smith wrote:

- quote -

In my opinion, you are absolutely NOT required to "audit" or
"verify" information furnished by the client. But - and
here's where it gets troubling - you can't ~ignore~
information furnished by the client, either.

What I hate is when a client sends me a "quicken" type
income statement (that's OK) but ALSO sends a complete
transaction register (or whatever they call it). Often, even
the most casual glance at the register will reveal that many
expenses were mis-classified. So, now what am I to do? I now
know (or have darn good reason to know) that many of the
expenses are not properly totaled. The time involved to
straighten this out will likely "break" the client,
especially since they think they've made my job easier by
entering all this (GIGO) in their computer.

MTW

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I have always thought that I was doing a pretty job. With
the ethethics requirement for CPE, I have found it may
require a bit more than what I have been doing. Do I have
to check every bit of paper that a client should have in
their files to back up their claim for an expense. If
someone does their bookkeeping for them or if they do their
own books, can I go by the print outs or do I have them
bring in every receipt or log to check each item line by
line. I have not required clients to sign a letter since
they have to sign the 1040 declaring the truth of its
content.

I go over IRS requirements with each client. I tell them
it is just hot air if they are never audited; however, if
they are audited and they have been truthful with me then
there should be no problem with an IRS audit.

What should be contained in a client letter in regards to
IRS requirement for due diligence and added protection for
me.

Guidance please.

Ricardo Smith, EA
Dunlap TN

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