On a recent Linked In group question, followers were asked if it was customary to place clients on extension, order an IRS Transcript of all items of Income, then file a tax return to match what has been reported to the IRS. I’ll share my response to that group here:
“It’s not customary, but I’ve done this for several clients for different reasons:
There’s that sweet, elderly couple that bring you all the important tax documents they received – so they think – but every year they get a CP2000 for a missing W2G. (Don’t I wish I had the problem of ever being ISSUED a W2G… And he never knew she won that much!)
There’s that newly (or not so newly) incorporated professional (doctor, lawyer) whose corporate name is “his name followed by APC” and large companies still issue 1099s in his SSN. Ever try to get a doctor or lawyer to be bothered with changing this info? They’re getting paid… What’s the big deal (gotta love our professional clients)
Let’s not forget COD that clients don’t even know is taxable, don’t know is income, and even after they answer our wellcrafted questions questions, may not tell us about… The concept of COD alludes the general taxpayer.
Did you specifically ask about the 401K loan they quit making payments on, so the bank considered the money an early distribution? Taxpayers – people – stop looking at mail from entities they are avoiding (the bank they stopped paying) so they round-filed the 1099R they got and now you don’t have it.
So depending on your clientele, you may have several reasons to pull a transcript. As long as tax evasion isn’t one if those reasons… more power to you – to your friend. Get the return right the first go-round.
And you may want to remind your friend that K1’s are notorious for not being on the transcript, so he/she should call that return preparer and get an estimate of the income if the K1 will be late 🙂 ”