Transcript Sources for Presentation

AVOIDING
COMMON MISTAKES
TO ERR IS HUMAN BUT QUALITY REVIEW IS
DIVINE
Dec. 7 2013
Agenda






Purpose of this session
Sources for presentation
Federal “Challenges”
Oregon “Challenges”
TaxWise “Challenges”
What did we miss?
Purpose

To give Instructors a
few points for
emphasis in training
with the objective of
improving our overall
quality
Sources for Presentation
DC’s, LC’s, CASH Volunteers
U.S. Treasury Inspector General for Tax
Administration (TIGTA) Audit Report



Volunteer Tax Alerts (VTA) and Quality Site Requirement
Alerts (QSRA)




http://www.treasury.gov/tigta/auditreports/2013reports/201
340110fr.html
http://www.irs.gov/Individuals/Quality-and-Tax--Alerts-forIRS-Volunteer-Programs (Current Year)
http://www.irs.gov/Individuals/Previous-Year-Quality-and-TaxAlerts-for-IRS-Volunteer-Programs (Previous Year)
Quality Statistical Sample Review Report Filing Season
2012
Federal Challenges










Interview and Quality Review Procedures 13614-C
Taxpayer Information
Scope
Filing Status
Exemptions
Income
Adjustments
Tax Deductions, Credits
Payments
Amount you Owe
Accuracy of Tax Returns at Volunteer Program Sites 51%
Overall Tax Return Audit Rates
TIGTA
100
90
80
70
60
50
40
30
20
10
0
Error Rates
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
QSS Statistical Sample Audit Results
Intake & Interview Usage
Total Correct
Returns Returns
Return Accuracy
Rate
Form 13614-C Correctly Used
281
258
92%
Form 13614-C not completed
Form 13614-C not used
Form 13614-C Process not
Followed
Grand Total
39
3
33
2
85%
67%
42
323
35
293
83%
91%
Interview and Quality Review Procedures

Inconsistent Adherence to Quality Procedures leads to
Inaccurate tax returns (TIGTA Audit Report)
Not obtaining sufficient information to apply tax law
correctly
 Not following intake/interview procedures
 Not following quality guidelines
 Not applying tax law correctly


QSRA 2013-03

All volunteer return preparers supporting TCE programs must use
Form 13614-C, Intake/Interview & Quality Review Sheet for every
taxpayer.
Interview and Quality Review
Procedures



Verification of the taxpayers’ identity to avoid the potential
for identity theft or tax fraud. (QSRA) 2013- 01
Advising taxpayers of their ultimate responsibility for
information on the return.
Explaining the tax return preparation process to the taxpayer
and encouraging him or her to ask questions throughout the
interview process.
Interview and Quality Review
Procedures




Completing Form 13614-C.
Confirming the taxpayer’s responses provided on
the Form 13614-C.
Reviewing supporting documentation and confirming
with the taxpayer that all income was discussed.
Exercising due diligence, including asking a
taxpayer to expand on information that may not
appear to be true or accurate.
Quality Review Procedures

In the TIGTA Audit, all 19 tax returns prepared
incorrectly did not follow one or more of the quality
review requirements.
 For
16 (84 percent) incorrect tax returns, quality
reviewers did not review the entire Form 13614-C.
 For 12 (63 percent) incorrect tax returns, auditor/client
was not involved in the quality review process.
 For four (21 percent) incorrect tax returns, no quality
review was performed.
Brainstorm Ideas – 5 minutes


Form teams of 3
Each team identify two mistakes that you see
frequently
Taxpayer Information

Misspelled names, especially for the Hispanic
hyphenated last names



Not checking an ITIN letter for the correct spelling, as defined by
the IRS, of the taxpayers name
Incorrect addresses – be sure to verify address from the
13614-C and not just let it default from prior year.
Double check apartment numbers/letters.
Incorrect Social Security Numbers (Information
worksheet, EIC, Education Credit)– often transposed
digits, hard to catch, need to read backwards
Taxpayer Information




Incorrect Date of birth, particularly for
dependants
Failure to enter a taxpayer phone number and/or
cell phone number (Makes it tough to contact them
if there is a problem!!!!!)
Failure to change a W-2 to reflect the SSN being
used by an immigrant who is filling using an ITIN.
Watch out for “carry forward” information that is
no longer correct such as a dependant.
Scope

Current scope for Program – be sure to emphasize what
is and what is not in scope


Volunteer Portal, TaxLaw Training, Training Documents tab,
In and Out of Scope Poster C2467 and AARP Tax-Aide
Scope Manual TY13
We are not obligated to prepare all tax returns for all
taxpayers. Denying service is not easy, but if you feel
the taxpayer is:
providing misleading information;
 the return is out of scope; or
 you just aren’t comfortable with the return;
Don’t do it!!!!!

Filing Status – New Chart





Dependents/HoH versus Single/EIC
Special considerations for child with divorced or
separated parents
Custodial parent cannot give HH, CDCC and EIC to
non-custodial parent
A child does not have to be a dependent to be
claimed as a Qualifying Child for EIC purposes
Difference between Qualifying Child or Qualifying
Relative
W2 & 1099 Income




Failure to override the W2 address if it is different
from Main Info address
Failure to enter the correct EIN and spelling of
business name on W2 or 1099
If income from a 1099R is for a disability payment,
be sure to check the box that will classify payment
as wages.
Failure to enter withholding correctly.
Self-Employment Income



Accuracy rate for Schedule C expenses was 69 % in the
TIGTA Audit.
Preparers are omitting cash income or are erroneously
reporting self-employment income as other income on
Form 1040, line 21. (Most common error in QSS Audit)
Exception for Grandparents receiving payments for
child care of grandchildren is reported as miscellaneous
income (unless they are doing childcare as a business.)
Tax court ruling:
http://nafcc.org/media/pdf/businessCenter/SteeleCas
e.pdf
Self-Employment Income


You can't deduct phone expenses for the first phone line.
Reference is 2012 Pub 535 page 46.
Self-employed tax payers, using their car within their
metropolitan area (aka tax home), who are not claiming
business use of home, cannot claim business mileage for
the trip from their home to their first business contact nor
can they claim business mileage for the trip from their
last business contact to their home. Reference is 2012
Pub 17 page 184-185.
Refund of State and Local Taxes



If there was a state refund received from last year’s
taxes, this may be taxable to the feds if the
taxpayer itemized the prior year.
If it's an Oregon refund that is taxable to the feds,
this is not taxable to Oregon.
If it's another state refund that is taxable to the
feds, this is taxable to Oregon too.
Adjustments

Educator Expenses – Accuracy rate for the Educator
Expense deduction was 54% in the TIGTA Audit.
 Qualifying
Educator for grades K-12.
 Educators may subtract up to $250 of qualified
expenses. This deduction is available whether or not the
taxpayer itemizes deductions.
 Volunteers did not include the deduction on the auditors’
tax returns because they did not completely review the
Form 13614-C
Adjustments

IRA - the accuracy rate for the IRA adjustment was
46% in the TIGTA Audit.



VTA 2013-02 February 26, 2013 highlighted the IRA
Taxpayers can reduce taxable income by contributing
money up to a limit to a traditional IRA. Contributions
to IRAs can be made as late as the first due date of
a tax return and can be considered retroactive to the
previous tax year.
Volunteers did not include this deduction because they
did not completely review the Form 13614-C.
Tax, Deductions & Credits

Volunteers incorrectly denied deductions and credits on
returns because supporting documentation was not
provided.
There are no specific guidelines requiring that taxpayer
provide receipts to volunteers to support the deduction or
credits claimed.
 Be sure to warn taxpayers that if the IRS asks for
documentation, they need to be able to document
deductions.



If there was a state tax balance due from last year’s
return, this can be a deduction on federal Schedule A
Portland Arts Tax is a new deduction….
Education Credits
When Scholarships exceed qualified
educational expenses on a 1098-T, the
difference is taxable to the feds. You may
be able to subtract this on Oregon using the
"Taxable Scholarships Used for Housing
Expenses" Subtraction (subtraction code
333).
Education Credits
Here is one example for 2013: Client has a 2013 1098-T that
shows $3000 tuition paid and $5000 in scholarships received.
They had $500 expenses for text books purchased from
Amazon that were not a condition of enrollment but were
needed for courses and $1000 for housing. They are fully
qualified for an American Opportunity Credit.

Is there a taxable scholarship in 2013? How much?


Is there an education credit in 2013? What are the adjusted qualified
Educational Expenses?


Yes. $5000-$3000-$500= $1500 on 1040 Worksheet 1
No, $0
Is there any subtraction needed for Oregon purposes in 2013?

Yes, OR Subtractions, Code 333 $1000 for housing to offset taxi
Education Credits
In 2014, the 1098-T shows $3000 tuition paid and no
Scholarship. There were $500 expenses for text books
purchased from Amazon that were not a condition of
enrollment but were needed for courses and $1000 for
housing expenses. They are qualified for the Lifetime
Learning Credit this year.

Is there a taxable scholarship for 2014?


Is there any subtraction needed for Oregon purposes in 2014?


No
No
Is there an education credit for 2014? What are the adjusted
qualified Educational Expenses?

Yes . $3000
Credit for Qualified Retirement
Savings Contribution



Only 62% of the TIGTA audited returns had the
credit correct
Taxpayers may be eligible for this credit if they
made deferrals to a 401K or an IRA or other
qualified plan and have AGI of less than $28,750
(Single), $43,125 (HOH), $57,500 (MFJ). Use form
8880
Volunteer Tax Alert 2013-02 February 26, 2013
http://www.irs.gov/pub/irs-utl/VTA_201302_Retirement_Savings_Contributions.pdf
Amount You Owe - Penalties



Penalty calculations are out of scope for both Federal
and Oregon.
Volunteers sometimes don’t notice that a penalty has
been assessed.
If TaxWise is calculating a penalty for federal, go to
the 2210 pg 1 form and type a 1 in line 8 in the blank
after "2012 tax:" If TaxWise is calculating a penalty
for Oregon, go to the OR 10 pg 1 form and type a 1
in line 8 "Enter the tax shown on your 2012 return after
nonrefundable and refundable credits - see
instructions."
Amount You Owe - Penalties


Always tell clients that there almost assuredly will
be penalties and interest for underpayment; it's just
that calculating them is out of our scope. Also tell
clients to expect a letter from Oregon and/or
federal.
Investigate ways to avoid the penalty and interest
in the future. Increasing the amount of withholding is
an option. Alternatively, discuss and set up
Estimated Tax payments in TaxWise.
State Challenges






Federal Pension – tax exemption and box 2 on 1099
checked
Retirement Credit – check box 1 on 1099 (often
defaulted)
Itemizing for a taxpayer to limit their Oregon liability
even when it doesn’t benefit the federal return
Don’t forget Special Oregon Medical Subtraction if
over 62 (taxpayer doesn’t have to reach itemized
deduction threshold to benefit)
Forgetting to subtract federally taxable scholarship
income that was used on rent
Knowing about Elderly Rental Assistance
ERA Program for Oregon

While few people qualify due to income and asset
limitations, this program is for the very neediest
seniors
 You or your spouse/registered domestic
partner(RDP) were age 58 or older on December
31, 2013; and
 You and your spouse’s/RDP’s household income was
under $10,000; and
 You paid more than 20 percent of your household
income for rent, fuel, and utilities; and
ERA Program for Oregon (Cont’d)
 The
total value of you and your spouse’s/RDP’s
household assets is $25,000 or less (if you or your
spouse/RDP are age 65 or older on December
31,there is no limit on the value of household
assets); and
 You rented an Oregon residence that was subject to
property tax or PILOT; and
 You lived in Oregon on December 31; and
 You didn’t own your residence on December 31
TAXWISE






Do not override income for social security wages and Medicare
wages on W2 when there is a contribution to a retirement account
(Box 12, code D-G). Enter box 12 code and they will be calculated
correctly.
Put estimated payments in the right place on the form: Line 63
linked to F/S Tax Paid worksheet in TaxWise.
Resolve all “red” entries in the forms tree.
Fill out the Capital Gains Worksheet correctly.
Enter an explanation at the bottom of Main Info (carries forward
next year) or the Taxpayer Diary (Date/Time Stamp each entry) for
Rejected and Waiting for Info returns
Remember to set return status and efile creation correctly. An
example: missing a spouse’s signiture and not setting status to that
with an efile ready to go.
Review from Brainstorming
What did we miss from initial
brainstorming session?