Like many accountants, I got into the field because being a CPA gives me superpowers that help people get out of sticky situations. And it’s those situations that make me grateful for the ways I’ve been able to assist clients over the years.
Here’s one of my favorite stories and the explanation for how I got started in my sub-specialty: taxes for dead people.
“CJ,” we’ll call him, was an active real estate investor. Some might have called him a “slum lord” for the types of properties he bought and sold: two trailer parks and an array of inexpensive, run-down houses in the low-rent parts of town. He rented some of those houses, sold some on real estate contracts and sold others outright. At his peak, he owned about a dozen separate properties.
Being a bit of a wheeler-dealer, sometimes a motorcycle or a car was part of the deal, and he’d sell those, too, occasionally on an installment basis through an escrow company and, once, via a company that auctions rare cars. He wasn’t always picky about the credit-worthiness of the people he sold houses to, so, periodically, he had to repossess a property and then sell it again.
CJ’s sister, Dolores, sometimes got him part-time jobs at the restaurant she and her husband owned, but mainly he got by on the rents from his real estate empire. He was a hands-on landlord and did all the maintenance at his rental properties himself. He was an entrepreneur at heart, and loved the freedom of being his own boss. He never made a lot of money, but he seemed to enjoy his life.
At least, that was what I gathered when I prepared 15 years’ worth of tax returns for him when he died at age 50. Dolores had been named executor of his estate, and she discovered CJ hadn’t filed a tax return for 15 years. To release a lien on one of his properties, Dolores paid the IRS $20,000, which is what they estimated he owed for the first year.
Even though CJ hadn’t filed tax returns for years, he did keep records, so Dolores brought us 15 boxes that filled one of our cubes. His information was roughly sorted by year, and the quality of it varied widely.
For the first several years, CJ had a girlfriend who kept meticulous records. I found ledger sheets detailing his rent income and expenses. There were manila envelopes stuffed full of receipts and labeled “repairs” or “advertising”, each with a calculator tape neatly stapled to the envelope. Payment receipts from the escrow companies that handled his many installment sales were sorted by property and bundled together with rubber bands. Closing documents for the properties he bought and sold were nicely sorted into folders.
But for the remaining years, CJ’s records were an incomplete and bewildering mass of receipts, closing statements, check stubs and cryptic notes. At times, I had to rely on estimates and the numbers from his IRS transcripts. A big challenge was tracking the history and basis of properties as they were bought, sold, repossessed and sold again. One particular property seemed especially problematic and was sold and repossessed at least six times.
Technology was another challenge. I could only go back 12 years with our current tax software. We found old TurboTax diskettes on eBay, but they were too old to install on our machines. One of the partners brought in an ancient PC from his garage, and I used that creaking, slow-as-molasses machine for the first three returns, praying it wouldn’t crash irretrievably before I was done.
When I crunched the numbers for his first return, he didn’t owe $20,000. As I recall, he had losses from his rentals, so we rolled that payment forward. That $20,000 ended up covering essentially all of his federal taxes, penalties and interest.
That project was early in my career, and I look back on it with pride. I had to decipher the documents I had and develop a story with numbers that reflected those documents and would satisfy the IRS. Dolores was grateful that settling up his tax bill didn’t consume his entire estate and she was able to transfer the remaining real estate to his sons, who seem to have inherited his entrepreneurial spirit.