Friday, September 29, 2017

Taxpayer Denied Innocent Spouse Relief Due to Knowledge of Inaccuracy

Maren Conrad was married to Dennis Conrad until his death, then she married to Jason Mininger.  A MFJ return for Mrs. Conrad and Mr. Mininger was audited by IRS resulting in a large balance due. She applied for Innocent Spouse relief and was denied.  Here is a summary of this case.

Maren Conrad was married to Dennis Conrad for several years.  David Gilliam prepared their income tax returns.  Mr. Gilliam was known for getting his clients large tax refunds.  One reason for the large refunds was losses passed through from a partnership return which Mr. Gilliam also prepared.  In the case of Mrs. & Mr. Conrad the partnership was for Conrad & Associates (presumably a fictitious partnership).  This partnership return showed some income and lots of expenses, resulting in a large loss.

In the year after Mr. Conrad’s death, Mr. Gilliam did not prepare a partnership return, presumably because the loss was not needed on Mrs. Conrad’s personal Single return.  The partnership returns were again prepared beginning the following year.

After Mr. Conrad died, Mrs. Conrad amended some of the prior returns for various issues but the amendments continued to show the losses passed through from the partnership.

In 2007 Mrs. Conrad married Jason Mininger.  Mr. Mininger also used Mr. Gilliam to prepare his tax returns including a return for a partnership (presumably fictitious) using Mr. Gilliam’s normal scheme.

The couple continued to use Mr. Gilliam to prepare their returns.  Their personal MFJ return for 2007 was audited.  It included a $284,517 loss from the partnership Conrad & Associates.  IRS determined the partnership did not really exist and the expenses claimed by Conrad & Associates were not real and lowered the loss to $0.  Mrs. Conrad’s brief filed with Tax Court did not argue the legitimacy of the partnership or its expenses, which led to assurance by Tax Court that the partnership did not really exist.

Mrs. Conrad later filed for divorce from Mr. Mininger in 2011 and is now asking for Innocent Spouse Relief regarding the audit of their 2007 return.

Tax Court denied her this relief.  Tax Court stated Mrs. Conrad clearly should have known about the fictitious loss that was claimed.  The fact that the loss offset most of her husband’s large wages should have been obvious.  The existence of losses on many years of prior returns including when she was single helps show she was aware of their usage and should have been aware of their inaccuracy.  Mrs. Conrad argued she relied on Mr. Gilliam and Mr. Mininger to properly prepare the 2007 returns.  Tax Court determined she was very likely well aware of the fictitiousness of the partnership and the loss, therefore Tax Court denied her the relief she sought.

Results – Innocent Spouse Relief denied.

Maren K. Conrad, TC Memo 2017-116.  This case can be found by going to, clicking on Opinion Search and entering Conrad in the Case Name box.

This text has been shared with you courtesy of:  David & Mary Mellem, EAs & Ashwaubenon Tax Professionals, 920-496-1065 (920-496-9111).

Wednesday, September 27, 2017

CT Takes Its First Baby Steps to License (Permit) Tax Preparers

Gee, Mr. Editor, didn’t you know that CT has actually done it?  They passed a law…how can you call that a baby step?  Well, most educated reader, read on and you might find yourself agreeing with me.

William Delaney, EA
Westwood, MA
What did CT actually do?  They buried the concept of licensing tax preparers in CT Public Act No, 17-147 (7/7/2017) when previously introduced legislation failed to pass.

Sec. 15(a) provides definitions.  Under 15(a)(6), a Person means any “individual, partnership, company, limited liability company, public or private corporation, society, association, trustee, executor, administrator or other fiduciary or custodian.”  See CT Ch. 201, Title 12, Sec. 12-1 of the general statutes.

(9)  Defines “Return” as one associated with the personal income tax, either federal or state.

(10)  Defines “Tax Preparation Services” as meaning preparing or assisting in the preparation of another person’s personal income tax return, either federal or state, for a fee or other consideration.

(11)  Defines “Tax Preparer” as an “individual” (which means that the expansive definition of ‘”person” in (6) is NOT applicable) who prepares personal income tax returns, either federal or state, for a fee or other consideration.

(11)(b)(1) reads:  No person that provides tax preparation services or acts as a facilitator shall…

So, we have a bit of a contradiction here.  A tax preparer is an individual (individual is NOT defined in the Act) who prepares personal income tax returns.  Tax preparation services is the preparation of another person’s personal income tax return.  A return is a personal income tax return.

The Act goes to great length to define “person” as just about everyone and everything, but the personal tax return appears to refer only to the federal 1040 or the CT 1040 individual tax returns.  Thus, it makes sense to define a tax preparer as an individual, but it would be nice if the statute would let us know what “it” means when it refers to an individual, and why it refers to a 1040 as a personal tax return rather than an individual
tax return.
Sec. 15(b)(1)(A) thru (M) is a laundry list of things which a person (note that this does not say individual) providing tax preparation services shall not do such as :engage in unfair or deceptive acts;” “make a material misrepresentation of fact…;” “require or allow a taxpayer to sign blank or incomplete tax forms,” plus one thing which shall be done, see (M)(2), namely sign the return and include one’s PTIN number.  M(3) provides for a  civil penalty of not more than $500 for each violation.

Sec. 16(a) defines a “commercial tax return preparation business” as a person (again, the expansive definition) that employs tax preparers (defined as individuals).

Now comes Sec. 16(b)(1) which states (in part) that “On and after January 1, 2019, no person…shall engage in the business of…furnishing tax preparation services…without a tax preparer permit…”  A literal interpretation of this would be that both the business entity (commercial tax return preparation business, as defined) and the individual (tax preparer as defined) would need to be licensed.  Now, let’s see what is required in order to obtain a permit…

Sec. 16(b)(2) sets out requirements for a “permit.”  (A) 18 years of age or older; (B) high school diploma; (C) IRS PTIN; (D) “evidence satisfactory to the commissioner that the applicant has experience, education or training in tax preparation services…” and, after Jan. 2, 2020, a certification of completion of an IRS AFSP of professional education.

Notice that I have mentioned only the requirements for individuals who apply.  Your Editor has not mentioned commercial tax return preparation businesses or other “persons” because there are no provisions for issuing permits to them, and the (b)(2) requirements don’t appear to be suitable or appropriate for any non-individual applicant.  So, is it only individuals (not defined in statute) who will be permitted?  Apparently, the language of Sec. 16(b)(2) notwithstanding.  (no person shall…)

A statute, taking baby steps, unsure of what it wants to do or whom it wishes to permit.

Sec. 16(3) appears to grandfather tax preparers already licensed in OR, since it has education standards in place although it is unclear if they are or will be  “substantially similar to the requirements for tax preparers…in this state.”  Likewise, NY, CA and MD may qualify because of certain mandated examination and education requirements.

There is a $100 application fee for a two-year permit; renewal is $50.  Civil penalty for practicing without a permit - $100 for each day in violation.  There is a $500 civil penalty for employing someone who should have a permit but who does not.

Sec. 16(e) exempts:

(1)  Licensed accountants in CT; accountants licensed or credentialed by another state or jurisdiction.

(2)  Attorneys admitted to practice in CT or elsewhere “…and any person engaged in providing tax preparation services under the supervision of such attorney.”  

(3)  Enrolled Agents (wherever situated).

(4)  Governmental employees (not clear if this means just CT situated).

(5)  Employees of or assistants to tax preparers or other persons who are exempt.

(6)  Individuals who provide tax preparation services solely for their employer.

(7)  A person acting as a fiduciary on behalf of an estate.  What about a fiduciary for a trust (the statute is silent)?

(8)  VITA and similar “Internal Revenue Service qualified tax preparers.”

Sec. 17 mandates that “Prior to providing tax preparation services, a tax preparer shall provide to any person requesting such services, a written disclosure that includes:”

(1)  The tax preparers name, address and phone number;

(2)  An estimate of the total charge;

(3)  Information security warranty.

Now, the big question is whether or not out-of-state tax preparers must register and/or otherwise comply with the Act.  Sec. 16(b)(1) appears to require a permit in order to furnish tax preparation services (it doesn’t say CT tax preparation services, although this might be a correct reading of the Act).  It doesn’t limit the permit requirement to in-state tax preparers or say that someone out-of-state must prepare 10 or more, or 50 or more, or 100 or more before being subject to the Act, so one would assume that any and all CT preparation work by a tax preparer wherever situated requires a permit in advance.

One of my colleagues has pointed out that the Act refers to the preparation of the federal 1040 in addition to the state return, so how could the permit requirement apply to out-of-state preparers who do 1040 work in their own state.  While I agree with his thinking, I don’t see anything limiting the state’s authority to “license” in the Act.  It is silent as to its intended reach.   I do agree that the state of CT would be overreaching if it asserted any authority to regulate MA tax preparers because they prepare a federal 1040, but CT is free to mandate that a MA or RI tax preparer who is not in one of the exempt categories first obtain a permit before submitting a CT state return (accompanied or not by a federal 1040) for paper filing or electronic transmission.

To give the devil his due, it does say in 16(3) that the education requirements apply to “the requirements…in this state.”  But that’s the only reference in the Act which appears to suggest that the permit process applies only to in-state preparers, and it could easily mean something else.

Again, a statute trying to take one or two baby steps and decide what it wants to do and how it wants to do it.

Finally, what happens if there is an alleged violation of the Act.  Who charges the individual; what are his/her rights; what is the appeal process, etc.  There is no regulatory Board.  Apparently, the state revenue department is in charge.  I don’t see any provision in the Act for statutory regulations, so how does one fix the inevitable deficiencies which will arise?  Perhaps the department of revenue will draft opinion letters?

What kind of education is required (“satisfactory to the commissioner”).  We don’t know. Nor is there a deadline for having this process in place.  The list goes on and on.

Saturday, September 23, 2017

A Message From Your Chapter President

David Johnson, EA, ATA
Chapter President
During the week of August 7-10, twenty- two of our Chapter members joined me in attending the National conference in Washington, DC.  This was my eighth year attending the annual conference and the education content, as well as, the selection of instructors was superb.  This year’s Conference Charity was KEEN, Greater D.C., which provides one-on-one recreational activities to children, teens and young adults with developmental and physical disabilities at no cost to the participant or their family.  Conference attendees raised $28,162 of which $500 was contributed by the MA/RI Chapter.  Each year our Chapter hosts an evening social get together and eats for attending members from our local Chapter.  This year, we enjoyed a pleasant evening at Open City, Woodley Park.  The conference culminated with a monuments by moonlight trolley tour.  For anyone who may be thinking of attending next year’s conference, it will be held in Anaheim, CA August 6 thru 9.

Now is no better time to register for our Chapter’s Fall Seminar and Annual Meeting scheduled for October 24th at the Holiday Inn, Mansfield, Mass.  This year’s instructor is National speaker Melinda Garvin, EA.  The topics she will be presenting are:

  • Is your Office IRS Audit Proof? : Rules and regulations for office procedures with regards to IRS procedure.
  • 1099-The Tattletale!: 1099 reporting and how to report on behalf of taxpayers
  • Small Business 1099 Reporting: 1099 reporting for small businesses
  • All or Nothing- Strict Substantiation Rules: Substantiation rules and regulations 
  • The HSA Used the Right Way: How to use and report HSA accounts

At the annual meeting portion of the day’s events we will be electing board member seats, whose term expires, from each of the following regions:

       Region 1 (Berkshire, Franklin, Hampshire, and Hampden counties)
       Region 2 (Worcester and Middlesex counties)
       Region 3 (Essex, Suffolk, and Norfolk counties)
       Region 4 (Bristol, Plymouth, Barnstable, Dukes, and Nantucket counties)
       Region 5 (Rhode Island)

I encourage anyone who may have a desire to represent their region to contact our nominating chair, Lou Vastano, JR at    

Just a reminder, our State Tax Update is scheduled for Thursday, January 4, 2018 at the Southbridge Hotel and Conference Center.  The new location for this seminar is 5 miles from our previous location in Sturbridge.

Looking forward to seeing you on October 24th in Mansfield.

Dave Johnson

David L. Johnson, EA, ATA

2017 Annual Meeting & Update Seminar

Massachusetts / Rhode Island NATP Chapter Annual Meeting & Educational Seminar October 24th 2017

Join the Massachusetts / Rhode Island NATP Chapter on Tuesday, October 24th, 2017 for our Annual Meeting & Educational Seminar. This all day event will be held at the Holiday Inn in Mansfield, MA. Registration details are below, and is handled online by National. Take a look at the details on our speaker and topics provided in this great 8 CE Hour opportunity including continental breakfast, snacks, lunch, vendors and great networking opportunities. This seminar is limited to the First 100 Registrants!

  • For online registration with credit card, click here.
  • To register by phone, fax or mail, click for the registration form.
  • After October 23rd, please print the form (see link above) and register at the door.

Speaker - Melinda Garvin, EA

With over 25 years of experience as a tax practitioner, Melinda Garvin is the Founder, President and Co-Owner of Foos-Garvin Accounting, Inc., a full-service, small-town practice serving the needs of 2000 clients.

Foos-Garvin Accounting and Melinda are members of the Better Business Bureau, Richland County Chamber of Commerce, National Association of Tax Professionals (NATP) and National Association of Enrolled Agents.

Since 2007, Melinda has been an instructor for NATP. In addition, she has presented at the IRS Nationwide Tax Forums, instructed various classes for local organizations and served on the Ohio NATP Chapter as the Education Director. To encourage tax professionals in office ‘best practices,’ Melinda authored the manual Audit Proof the Tax Office in 2012 and has recently published a second manual called Best Practices for the Tax Office. She aspires to support all aspects of the tax preparer’s role when it comes to interacting with clients and the IRS, and encourages all tax professionals to stay current by taking continuing education.

All of Nothing - Strict Substantiation Rules

Is Your Office IRS Audit Proof? (Have you met the IRS expectations for safeguarding your taxpayer's data?)

The HSA Used the Right Way

1099: The Tattletale

Small Business 1099 Reporting

Special Offer for the January 4th, 2018 State Update Seminar
Sign up on October 24, 2017 and pay by November 8, 2017 for ½ Price