Three More Signs Your CPA May Be Costing You An Audit


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2 Comments

1-20-11-1

Yesterday, I started the list of five signs your CPA may be costing you an audit. Here are the rest of the signs to look out for:

#3: CPA is using outdated information, someone else’s information or information completely at odds with what you’ve heard here or other places.

One of the things I’m constantly running into is people using my old tax information. There are two things wrong with that: (1) it’s often illegal and (2) it’s old.

I think the 2nd one is really the biggest problem, at least for you. I’ve been active on the Internet since 1993 and in that time written probably thousands of articles. Most of them are out-dated because tax law is constantly changing. But the Internet has a long, long memory and so they are in the public domain. People take my stuff all the time, attempt to spin it so it’s fresh but they often do it wrong and what’s left is information that may or may not have my name. The one thing it usually has is information that is just flat wrong.

Here’s a partial quote from a free ebook that was just published a few weeks ago on another site that I discovered:

“…there are times when holding your investments in an LLC will result in significantly higher taxes vs. in a Corporation or a Trust.”

Wrong!! Since an LLC can elect how it wants to be taxed, there effectively is no difference between an LLC-C and a C Corporation. And at any rate, never never never put appreciating assets inside a corporation, especially a C Corporation.

And as far as Trusts go, unless this is a complex trust (with it’s own separate rate of 35%), it all flows through to an individual return anyway. You don’t gain a thing tax-wise, have potentially created a nightmare audit situation and might have poked a hole in your asset protection plan.

This is a great example of what could be the most expensive tax information you will ever get. And it’s ostensibly FREE tax information.

#4: CPA is sole practitioner, but promises you EVERYTHING.

For years, investment companies and life insurance companies have encouraged CPAs to get their securities license so they can sell products and make more money. Some CPAs do a great job of giving investment advice, but that’s because that’s their specialty! They aren’t trying to do everything else as well.

Watch out for the one man show who is trying to do everything – financial planning, tax preparation, bookkeeping, retirement planning and tax strategy work to boot. If there is a big firm behind him, with different departments handling different pieces of this, then great. Otherwise, you’ll likely find someone who is overworked and fragmented.

Avoid the guy who promises financial planning, accounting, bookkeeping, retirement planning, tax preparation, tax strategy and a set of steak knives.

#5 CPA is using risky name or illegal-sounding strategies.

There’s a reason that I switched to the name US Tax Aid for my tax information company. I knew the current firestorm of auditing was coming. More than ever, taxpayers need TAX AID that is easy to follow and clearly legal and tax compliant. It’s also a non-confrontational name. You don’t want to risk anything that looks dodgy these days.

I just received an email from a potential new client who has been with the same tax preparer for two years. She just found out that the IRS was trying to shut him down. I had one question for her:

Have you gotten your IRS notice of audit yet?

And, if not, let’s get ready for the audit, because it’s coming.

The first that the IRS will do if there is someone that is giving bad tax advice is shut them down. And the second thing will be to grab the customer lists (including anyone who attended a seminar, in some cases) and then start sending out audit notices.

The IRS has doubled their audit force. Don’t make yourself more of a target by a few bad decisions or a poorly prepared tax return.



2 Comments

  1. Diane Kennedy says:

    Lauren, sorry to hear that!

    I’m guessing that you took the RE Professional status on your return.

    Your auditor will want to see (1) that you qualify based on real estate activities (being really active in the business) (2) that your real estate activities hours are enough and (3) that you materially participated in the property(ies).

    And yes, we can help. Can you drop a note to Richard @ USTaxAid DOT com. I have to write it like that or the bots find it and send Richard about a thousand spam emails….

  2. Lauren says:

    Hi Diane, Great info throughout your Blog. I have been an active follower of yours for a number of years and I thought I had a good team in place to support my RE investing through an LLC, but I was just hit with an IRS audit. Auditor is specifically targeting form 8825 expenses and depreciation, Passive loss limitations and at risk limitations of IRC 465 & IRC 469 (RE Prof. material particiation and deductions). Are you available to consult on specific cases such as mine? Auditor just called to postpone the field interview until May….HELP

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