Tax, Finance, CE, CPE, EA, CPA, CFP Blog: Utilizing Tax - blog*spot

Sometimes you can’t tell whether someone is lying or just confused. Both actions seem to arise concerning tax matters. Part of the work a CPA performs is identifying accurate details about a taxpayer’s circumstances. This assures that no confusion is clouding the issues. That procedure explains why study for CPA licensing includes ethics training. Tax accountants must exercise care to fully collect all facts. Applying the correct tax treatment is only possible by first investigating all elements of the taxpayer’s situation. Consequently, CPA exam preparation demands knowledge of tax rules plus an understanding of when to deploy them. A recent decision in federal court reveals how a Connecticut taxpayer named Joseph Colbert ran afoul of IRS rules. Colbert is an attorney who did not use a professional tax preparer. Like many court cases, this one conveys the importance of how to study for CPA exam success. That process diligently uncovers relevant facts for subsequent determination of applicable tax rules. The basic occurrence of rental property ownership presents numerous opportunities for chaos at tax preparation time. Illustrations arise in court and CPA exam questions. If Colbert had obtained CPA help, some doubt exists about whether he would have followed it. His conviction for filing false tax returns indicates he sought a different route that the ethical one followed by CPA tax practices. Over the course of three years, Colbert reported losses on a New Jersey property that was, in fact, not rental property at all. He underpaid his federal taxes for those years by $133,000. On the surface, this is a matter as easily understood by a CPA as the IRS. Vacant rental property is not uncommon. But frequent vacancy is certainly suspicions. A property that sits vacant for three years should definitely draw scrutiny from the questioning of a CPA tax professional. This certainly attracted attention of the IRS for Colbert. Adding further insult to the situation, Colbert’s 2006 tax return incorrectly claimed a business loss of over $25,000. Colbert was sentenced to two months in prison followed by one year of supervised release, a $15,000 fine, and 150 hours of community service. Evaluating how a CPA would have advised Colbert encompasses several details found in CPA study material. First, landlords must make property available for rent to qualify for deduction of expenses as ordinary and necessary for a rental activity. Secondly, renting property is considered a passive activity under the tax laws ??" at least, for someone who doesn’t spend a sufficient amount of time working as a real estate professional. Therefore, rental losses high enough to result in a $133,000 tax underpayment exceed the limit for deduction against ordinary non-passive income. Finally, although
deduction of losses for a business is usually not subject to passive loss limitations, the taxpayer really does have to substantiate the expenses creating the loss. Colbert failed all these tests, as any CPA is capable of determining. IRS Circular 230 Disclosure Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.

Source: http://fastforwardacademy.blogspot.com/2012/10/utilizing-tax-information-from-cpa.html

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