Hey folks...need some input here. I got audited by the IRS, went in to meet with them today. I use to have a rental property...my first and my last...too much headache for me. Turns out my Tax preparer put my itemized things (new roof, new frig, new oven) into the wrong part.

What are my options? Is the tax preparer liable for any of this, since she advised me on how she was going to prepare my tax return.

 

I am not a tax expert, nor do I play one on TV.

But it all depends on what your situation is. Your post did not mention a lot of details. Did the IRS find you guilty of tax fraud? Did they charge you a penalty or merely interest? Or was it just a re-calculation of your tax owed? Did your "tax preparer" actually prepared the tax return for you or did she merely "advised" you? Did she put her name on your tax return? Did she attend the audit with you (and if not, why not)? When you say "is the tax preparer liable for any of this", what do you mean by "this"? Maybe others can better help you if you tell us more. Good luck.

 

Also did you sign off on the return saying its true and correct?

 

does IRS only audit those w/ annual income greater than certain amount?

 

First thing is to go back to the preparer and talk to them to see if the IRS is correct. Sometimes the auditor doesn't know what they are doing. If the preparer doesn't know, find another preparer (like a CPA) and ask their advice. Don't agree to anything until you are sure the IRS is correct.
Finally, your preparer is not liable for the taxes you might owe as a result of the audit. If done correctly, you would have paid the tax yourself already. BUT, they should reimburse you for any penalties that may be added. And possibly any interest, although they can argue that you had the use of the money and should pay that yourself.
Where do you live?

 

To answer your question.

-The IRS is in the process of re-calculating my 2002 tax return.
-Yes, my tax preparer (CPA) actually prepared the tax return.
-Yes, she put her name and company on the tax return and signed it.
-She did not attend the audit because I was not aware that there was that huge of an error.
-When I said 'liable' I mean, is she at fault. I am no expert in preparing tax returns that's why I hired her to do it. According to the IRS, my expenses (new roof, new frig, new stove) should have been put in the depreciation instead.

 

Of course I signed it. How was I suppose to know the data was put into the incorrect part....

 

I'll be giving her a call this afternoon to discuss the matter.

She's a CPA so I assumed she would prepare my tax return correctly.

I guess I'll have to also call my lawyer for legal advice...

I live in Minnesota.

 

Don't call your lawyer.
Your CPA should represent you for free for the mess up, pay any penalties and interest you owe, but you are responsible for the tax.
If she did what you said, she should take some classes in tax preparation. Tell her another CPA said that.
If you are nice and professional with her, and she gives you any sh*t, tell her you will talk with your state's licensing board. But give her a chance first to make things right.

 

basically it seems like what happened is the preparer expensed the new items (roof, fridge, stove). This would mean you get the deduction all at once. Since these are "investements" in your property and have a certain lifespan, they should be amortized. I'm not sure on the life, maybe 5 years...the IRS should have the lifespan of these assets.

Basically the net result is you will be deducting a fraction of the cost of these things for the next several years vs all at once. Bottom line you'll owe more in 2002 but you'll get to deduct the rest over the next several years.

I know a bit about tax, but I'm not a cpa. I believe there may be a dollar threshold on what you can expense vs what you can amortize. Or, it may be lifespan related. Pest control and lawn mowing would be expensed, but a new roof is something that lasts longer and should be depreciated.

I find it very weird that your cpa expensed these. Of course, not every cpa knows all the rules, but at least a good one should know the circumstances and LOOK UP THE RULES! I don't think the IRS is going to steamroll you or anything. Its not like you're hiding income.