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On Friday, May 15, I received the attached email Alert from the IRS Office of Professional Responsibility. The email topic, When a Practitioner Passes Away, is mostly focused directly at anyone subject to Circular 230 that practices before the IRS, typically attorneys, certified public accountants, enrolled agents and others who prepare tax returns for pay. I think it likely that every state also has their own additional laws and regulations regarding protection of your data.
Over my career, I have found myself being a subsequent tax preparer numerous times where a CPA colleague has died. Lately, I have also been involved with “orphan” clients where a firm has merged their practice with a different (typically larger) firm but the new firm has decided to no longer offer tax services to a particular class of clients or specific clients. Frequently, those orphan clients are either not expected to be profitable in the eyes of the new firm, the new firm does not have the staff to appropriately serve the client, the client has a history of actions, such as providing initial documents just before a tax deadline, not paying invoices timely, and so forth which can stress the process of providing accurate and timely tax services, or all of the above.
The nightmare situation for clients does occur when a client has just dropped off original information to the preparer, the preparer dies and there is no one to return the information and that job of returning client data falls to a non preparer volunteer executor. You may want to request any needed extension yourself if you are near a tax due date.
I agree with the article’s first point that early and often communication with your existing preparer is key to a smooth transition to a new preparer.
Your original data are yours, and as such that original data should be returned under the rules tax preparers operate under, but the time frame may not be to your liking when the tax preparer dies in possession of your original data.
The files your preparer creates, either paper, electronic or combination are typically owned by the preparer or the firm that the preparer works for. When the preparer dies the responsibility to protect your personal data continues even though the preparer has died. At some point if appropriate planning and actions have not been done to transfer the files upon the preparer’s death and followed through on, that useful client information in the preparer’s file will likely be destroyed when the statute of limitations period expires under the preparer’s obligations to maintain information for returns they have prepared. Widows and executors of deceased preparers who have client files do not want continued liability to store and protect client data.
Do yourself a favor and either give your preparer (complete) copies of the original data or upload data directly to the preparer’s portal whichever the preparer prefers instead of providing original documents. While your at it take the time to answer all questions on a tax organizer, but only you want the most accurate return at the lowest cost.
Many tax preparer’s have software that can print a “reviewers copy” that the preparer uses as part of a final review after all data has been input that includes analytical information, diagnostic information and some detail of data input that does not appear in the copy sent to the government or typically to you. You may not be a tax expert, but you may spot something the preparer did not that just does not appear correct. I think most preparers are thrilled to have clients who review and ask appropriate questions.
Another best practice is for the client to review the draft return, prior to the required formal transmittal authorization, of the prepared tax return before transmittal. You may be able to do a better job in your client review of the preparer’s work if you are doing so from a reviewer’s copy. Ask your preparer if you can have a reviewer’s copy, often sent to you as an encrypted pdf attachment by email or sometimes found on the preparer’s secure portal , of the draft return for your review if they have one.
Ultimately, the government(s) considers the taxpayer(s) responsible for what is on the return even if a mistake was made by a preparer. Please spend the time to actually review your draft return prior to transmittal. I believe it is typically always better to extend than have to amend.
I hope you do not have to ever go through the additional stress of your preparer dying with your return in process.
This good information made me, as a self-preparer, review my historical information thinking about what my survivors would need and how they would access it.
I make photocopies of all the original documents before bringing everything to my preparer because I assumed he needed to see the originals. It sounds like I could bring the copies and keep the originals? Thanks.
My understanding of the general legal & ethical requirements when acting as a paid preparer is that a preparer has no obligation to review original documents unless they believe the information provided by the client is incomplete or inaccurate. Additionally, inputting data into the preparer organizer from a W-2 for example that you are providing is overkill in my preference. In the organizer I prefer a client to just notate ” see W-2″. Most organizers have prior year sources and amounts. If source is not repeating in the current year tell your preparer in the organizer the why. Examples “Account closed in prior year”, “No IRA distribution taken in current year”. Most organizers have a series of general questions designed such that a “yes” response means the existence of a matter that the preparer will need to take action on in preparing your return such as a question about digital assets. If in doubt about how to answer the yes/no question my preference is a ? or a “call me”.
I would ask your preparer what they prefer, original or copies. If the preparer is building a paper file they may actually prefer receiving photocopies as they then do not have copy or return originals saving them time and hopefully you money as many preparers base their invoice on time spent. Every firm or preparer typically have different preferences and procedures.
There are exceptions as to the original vs. photocopy question. For example, if your return is one of the minority of returns that requires paper filing with the IRS the attachments will need to include the appropriate original government copy of W-2’s and 1099s that has federal withholding. Note by using your phone to take a picture of your W-2 and then hitting send you are transmitting your full unencrypted social security number which may not be the best idea.
Your preparer may not copy everything you provide. They may prefer, for example, a list of charitable contributions and they only copy the larger contributions acknowledgements in addition to your list. Ask your preparer what they want and what is most efficient.
Interestingly to me, many people that do provide copies to their preparer make their copies at a commercial copy center. I have seen my share of copied broker statements where the copies my firm received are pages numbered 1,3,5,7… and we are missing half of the statement.
I very much enjoyed this article!
Regarding: Another best practice is for the client to review the draft return, prior to the required formal transmittal authorization, of the prepared tax return before transmittal. I only get to review the final results after the forms have been transmitted and I’ve paid. I usually find an error and then it becomes the silent treatment to get it corrected.
I really do not understand how you as taxpayer are not offered at least a draft copy of your 1040 return to review before you, and your spouse if married, sign the the electronic transmittal authorization form 8879.
Most preparers actually wear dual hats. One hat is the preparer hat. The second hat is being the Electronic Return Originator (ERO). While the preparer hat does not have a legal mandate for you to receive a copy of the return from the preparer prior to signing to the 8879 I believe the ERO hat does create a legal mandate to provide the taxpayer(s) with the final return as prepared before signing the 8879.
I would note taxpayers sign the 8879 under penalties of perjury and attests that he or she has reviewed the tax return before signing the form.
Here is a link to a 2018 article published in the AICPA’s publication The Tax Advisor that is on point.
https://www.thetaxadviser.com/issues/2018/jan/form-8879/
Mr Perry, I really appreciate your response! The Tax Advisor link is absolutely informative.
My wife and I have used two different Enrolled Agents and two different CPA’s over the last 33 years. Never once were we given an opportunity to review our completed tax forms. We have been using the current person for about 20 years and we sit at the other side of the desk with that agent while the tax forms are prepared.
We have an outstanding issue on our 2023 taxes whereby the tax agent failed to include federal taxes paid on an RMD, even though the 1099 was included with all the tax documents. In essence, we overpaid our taxes. It’s been a year since our amended 1040x was completed, and it was also filed electronically. I’ve called the IRS at least four times to see if they have received it as I don’t show it via the IRS link ‘where’s my refund.’ When I last called the IRS about a month ago, they said I should have a transmission number, and suggested the tax agent resend again. I have not seen or been give the transmission number.
I called the tax office to inform them to resend again along with a followup email. I’ve had nothing but the silent treatment from the agent and the owner of the firm. I don’t know where to go from this point, other than going to the tax office and ask for the forms with signatures for what I need and will mail the amended form.
If you other suggestions that would be helpful. I like our tax person, but the communication is very frustrating and probably time to move on.
Thanks again for your reply, even though it wasn’t directly pertaining to your excellent article.
Thank you for the kind words about the article. I have a couple of thoughts on other tax matters discussed below, but I am unable to offer you detailed recommendations about your personal frustrating tax situation other than to seek appropriate competent professional tax help as appropriate.
The IRS does have a Do it Yourself inquiry tool to tract amended returns available for individuals. For any amended 1040 that the IRS has received and processed I would expect a taxpayer should be able to track status.
When the IRS processes a 1040 sometimes if there are certain tax discrepancies with information the IRS already has, the IRS may change and just send you a notice of what they are changing known as mathematical corrections. My expectation for any timely filed 2023 1040s is any mathematical corrections are likely complete.
Per the IRS website you can access your personal tax records online or by mail, including transcripts of past tax returns, tax account information, wage and income statements, and verification of non-filing letters. To access your tax information online the IRS is requiring taxpayers to resister through ID.me to provide verification services of the taxpayer.
I hope this helps.
Best, Bill
Thanks once again Bill! I’ve been using the tool link you recommended every time I check on the status.
I did the steps to get registered with ID.me. Once completed, it won’t send me a verification code, even though I kept getting codes during the setup.
I called the IRS (1 hour wait) asking to verify if the 1040-X was received yet, and it still hasn’t. Sometimes you get a kind and helpful person, and sometimes you don’t…like today.I asked about the problem with ID.me and not getting a code. Was given a number to call for help, but due to technical difficulties they could not take my call.
I’m back to leaving a message with The Silent Treatment Tax Services.
I certainly appreciate you listening to my babble and offering suggestions. Have a good week!
Excellent advice Bill. I’ve heard a few horror stories of people transitioning tax preparers.
A client was referred to me, his CPA had died at the age of 85. The client was in the equestrian business. I had no experience with that particular type of horsey business, but I agreed to have a look. I anticipated passing this client off to an enrolled agent with the proper knowledge.
I had the client provide additional tax returns going back another 10 or so years. Same thing, never a profit, never any notes or schedules.
I told him that if he could arrange it with the old CPA’s family, I’d be willing to search the files at the old office. He did not think anything could be found, as the office was always in disarray. I could not help him, and none of my CPA or EA contacts would take him on.
Months later I was near the old CPA’s office, located in an old retail strip near my childhood home. Curious to peek inside, I stopped to have a look. Inside, behind grimy windows, I saw mountains of documents piled up to the ceiling. There was no way anything could have been found.
And talk about Circular 230 violations….
What a great sad story. And surely the person you tried to help wasn’t the only person affected.
My current tax preparer is handling all my data online. I upload a completed organizer and scans of all relevant documents. Later I download her cover letter, my federal and state returns and all supporting documents. Aside from giving my executor access to my computer, doesn’t seem I need to do anything. I am probably going to look for a new preparer, as I found a rather basic error when I reviewed my return this year.
Ah yes, Circular 230, the HIPAA of the tax prep industry. Great advice for taxpayers to keep original copies of documents and to make an effort to understand what is inside their tax return.
Thanks William