I just want to start this article by saying that I am far from being perfect. I make a lot of mistakes. However, with the checking system that we have in place here in the office, 99.9 percent of my mistakes are caught before they go out to the client. I do analyze a lot of returns and I have to say that there are some people who just shouldn’t be in practice.
I picked up a client recently. As with all new clients, I asked for the open year’s tax returns. The client was in collections for income and payroll taxes. He owned an LLC in Tennessee that was a real estate development company.
In the LLC, he had three rental properties that were in foreclosure in 2015. In 2016, the client filed bankruptcy and the bank took possession of the rental properties. The tax preparer listed the properties sold in 2015 for nothing, I guess due to the foreclosure, and the taxpayer ended up owing $36,000 in income taxes.
I asked the client after I examined the returns for the 1099-A about the 1099-C that should have been issued by the bank. According to the Taxpayer, the 1099s were never issued. So, I asked the obvious question, “Why are the properties listed as being sold on 2015’s returns?” The client said that he had told his tax preparer that he was in foreclosure.
The problem here is that someone can still possess a foreclosed home.