Thanks to everyone who took the time to reply. I appreciate
the comments about how the return could have been filed
rather than the extension. It sounds like a combination of
mediocre screen layout and end-of-tax-season human error.

It's my wife's SEP, and she deals with the accountant, but I
think the master plan is to follow Frank's last suggestion.

I agree with the comment that we aren't really losing the
full $5000 because we'd pay taxes on it eventually, and that
makes me feel a little better, but: 1) we lose the benefit
of the tax-deferred earnings on the investment, 2) our tax
bracket should be lower when we retire, and 3) it just
shouldn't have happened.

Thanks again---
Rick

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Frank S. Duke, Jr. wrote:

- quote -

I think the issue is that the preparer, in attempting to
e-file the extension, accidentally e-filed the return. On
my computer, those two choices are adjacent, and the
following screens look similar. If your software defaults
to a computer-generated PIN and the computer date as
signature date, the return will look to the IRS like a
valid, signed tax return. It's scarily easy for me to
believe both that the preparer could accidentally screw it
up and that the IRS would happily accept and process the
return.

I'm with you that the e-filed "return" isn't an actual
return, any more than a paper-filed return would be if the
preparer had forged the taxpayers' signatures (which is
essentially what happened). But the issue isn't did he
file; it's can he make the SEP contribution when the return
hasn't been extended.

I'd like to amend my previous comment, which essentially
said "No extension, no SEP." If the OP is so inclined, try
filing a 2nd extension request (Form 2688), and check the
"didn't file a 4868" box. Fully explain your hardship in
item 2, and attach a letter from the preparer saying they
screwed up. If you get it back with either "we have
approved" or "we have not approved, but you have 10 days," I
think you're good on the SEP, as long as you make it within
the new deadline.

Phoebe

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >

r_olson[at]sandiego.edu at r_olson[at]sandiego.edu wrote:

- quote -

What a cheesy excuse to weasel out of responsibility. While
all accountants make mistakes, their professional
responsibility is to own up to them, not blame some
inanimate computer program. Do you think "software error"
would have exonerated Lee Hazelwood for running the Exxon
Valdez aground. The captain is responsible for where the
ship goes, no matter what. When you file an electronic
extension, you get an acknowledgement, just like you do for
a return. If it was done over the phone, you get a
confirmation number. If it was done by snail mail, why did
you pay an accountant? You could have screwed that up on
your own.

- quote -

Hard to believe the IRS would accept an unsigned return.
They return them all the time.

- quote -

You bet she should!

- quote -

I think I would send a letter to the IRS explaining your
uncertainty about whether or not you files and list the
chain of events as you saw it. Ask them directly for
clarification about your situation. Do it in writing so you
have a response from them on paper.

Not funding the SEP is really not as bad as you think. Yes,
you will lose the benefits of tax deferral but that is all
it is, deferral. You will eventually pay tax on that money.
I suspect the difference is greater than $0 but a lot less
than the full $5000. What it will cost you is $5000 this
year vs. some amount in the distant future.

All freely provided advice guarantee correct or double your
money back

Frank S. Duke, Jr. CPA
Cincinnati, OH USA

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >

r_olson[at]sandiego.edu wrote:

- quote -

IMHO, what was filed was not legally a return, because you
didn't sign it. However, the lack of extension precludes
the SEP.

- quote -

Assuming they catch the error (which we have to assume,
because you can't take a position based on "audit lottery"),
I'd say slim but nonzero.

I suggest: Make no SEP contribution, calculate the financial
damage, and request your preparer make you whole. The
damage isn't the amount of tax savings you lose, because the
withdrawal will be taxable in the end. It's some amount
based on the loss of tax deferral on the contribution and
earnings. If it (plus the penalties your preparer has
already agreed to pay) are large, the preparer's malpractice
coverage will pick up a portion.

Alternatively, you could have your preparer pay for a PLR
regarding whether you could make the contribution. This is
likely to be more expensive, even if the IRS allows the SEP.

(This makes me glad I don't use the software default that
says "use computer date as signature date." If I don't key
in a signature date manually, I can't e-file a return, but
can e-file an extension. Sometimes a little inefficiency
will save you.)

Phoebe

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Last April we asked our accountant to file a tax extention
for the 2004 taxes. At the time we hadn't put anything into
my wife's SEP. We were waiting for the accountant to do the
return to tell us how much to put into the account. Since
then several things have not gone according to plan. To
whit:

- April, Asked accoutant to file for extension. Paid
$20,000 in 2004 taxes "just in case"

- Late May, received letter from IRS stating we'd overpaid
our taxes and would be receiving *a check* with $30K refund.
At this time we were still thinking we we sitting on an
extension.

- June: Sent $10,000 to IRS saying to apply it to out 2004
taxes.

- July: Received bank statement indicating that IRS refunded
the $30K electronically.

- Accountant worked on taxes last week and looked into the
reason for the $30K refund. It turns out that an
"incomplete return" was filed instead of an extention. She
says that it was a software error. The "Good news" is that
the IRS received our $10,000 and applied it to the 1st Qtr
2005 taxes. (The check had 2004 1040 written on it). Based
on her read of the situation, we now owe $14K in 2004 taxes.
This has to be done by filing an amended return because NO
EXTENSION AS EVER FILED. (Of course, I didn't sign the
"return" that was filed, so I don't know how that fits in
here)

I'm ok with the $14K. They gave us too much back, so we owe
them some. Our accountant will pay any penalties because it
was her error (or her programs).

Still at issue is the SEP-IRA. At first she said we could
put $12K into the SEP. My wife asked whether that was still
possible because the IRS thinks we filed a return and not an
extension. Consequently, the deadline for the SEP
contribution should have been April 15; which we missed.
Not funding the SEP will cost us about $5000 in US and CA
taxes.

Today the Accountant replied:
"Technically, the SEP contribution would not be allowed.
However, I suggest you make the contribution and I can fight
it based on the problems encountered with the extension
filing."

At this point I'm leery about that course of action. What
are the chances that the IRS will allow the extension and
not penalize us for making an illegal contribution.

Thanks for your help--
Rick

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >