Time to contact E&O?

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#1
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One time client, just received notice from California that on his 2013 return he wrongly took a credit for taxes paid in another state. California wants the money back. Client was a part year resident of California ( end of year) and a part year resident of Iowa, which is why I think the confusion happened. Proseries took the credit in California for the taxes he was paying Iowa. I didn't catch the error at the time. Normally I would just go amend and correct Iowa, but notification from California has come after the statute for refunds in Iowa has closed.

I haven't ever filed a claim with my E&O but assume this is the kind of situation to contact them about? Is there a number that makes it not worth filing a claim with E&O amount is $5500.

Opinions appreciated thank you.
 

#2
sjrcpa  
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How much is your deductible?
Will they drop you if you file a claim? Do you have an agent you can ask?
 

#3
Frankly  
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The TP is responsible for additional tax liability that would have existed had the return been filed correctly. Penalties caused by the error would covered under E&O; tax is not.
 

#4
JAD  
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I disagree. If the returns had been accurate, the credit would have been claimed on Iowa. If the SOL has passed, then the credit can't be claimed on the Iowa return, so the taxpayer will be paying tax that he would not have had to pay had the returns been accurate. E&O covers tax, penalty, interest.
 

#5
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The taxpayer would have not had an additional liability if the tax return had been filed correctly. The credit would have been taken in Iowa and credited to California. He paid this liability to Iowa now CA wants it and seems to be correct that it should have been done that way but waited too long to notify tax payer to file to correct in Iowa sadly. The error is costing him an additional $5500 he would not have had to pay had it been done correctly.

No deductible and I do have pre claim assistance no idea about getting dropped. I am wondering if its like homeowners insurance in that claims sometimes raise rates more than they are worth?
 

#6
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norcalea wrote:One time client, just received notice from California that on his 2013 return he wrongly took a credit for taxes paid in another state. California wants the money back. Client was a part year resident of California ( end of year) and a part year resident of Iowa, which is why I think the confusion happened. Proseries took the credit in California for the taxes he was paying Iowa. I didn't catch the error at the time. Normally I would just go amend and correct Iowa, but notification from California has come after the statute for refunds in Iowa has closed.

I haven't ever filed a claim with my E&O but assume this is the kind of situation to contact them about? Is there a number that makes it not worth filing a claim with E&O amount is $5500.

Opinions appreciated thank you.


Is the SOL in California still open? My guess is it is as the tax exceeds some statutory limit. Yeah.. I just saw it, 4 years. Damn, this sucks. While a crappy situation, have you considered simply paying the tax yourself?
 

#7
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California is a nightmare to work with..Their 4 years SOL is on refunds but they have no statute on collections. And yes, I am considering paying it myself . I am a small solo so it is not a small amount of money to me. The dollar amount sits right at the level where I wonder if I should just handle myself and then whine to Proseries for a discounted software package instead of having a claim on my record and increased rates. Do you have an opinion?
 

#8
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norcalea wrote:California is a nightmare to work with..Their 4 years SOL is on refunds but they have no statute on collections. And yes, I am considering paying it myself . I am a small solo so it is not a small amount of money to me. The dollar amount sits right at the level where I wonder if I should just handle myself and then whine to Proseries for a discounted software package instead of having a claim on my record and increased rates. Do you have an opinion?


I have been in practice 30 years give or take and have never seen anything this penal on a basic 1040. It really shows how a basic tax return is a mine field waiting to blow up in your face. I would probably pay it to California and I would absolutely deduct it on MY tax return thus cutting your cost a little. I would then whine to PS although this sounds like you just missed it. It happens a lot I imagine. This is now a very expensive education. I just found an error on a return I did last year where the client should have paid $XXX to a state and didn't. I will bring it up to them after tax season.
 

#9
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Thanks for the feedback. Yep, I definitely missed it and was guilty of being overly confident in the tax software - no excuses on that. However a good whine might get me an extension of my currently discounted package to take some of the pain away.
 

#10
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norcalea wrote:Opinions appreciated thank you.

JAD wrote:If the returns had been accurate, the credit would have been claimed on Iowa.


If the taxpayer was a part-year resident of Iowa and a part year resident of California as described, then on neither return should you be claiming a credit for other state taxes. Each state would prorate the income (California has a schedule CA and Iowa has Form 126) and the taxpayer only pays tax based on the prorated income to that state.

If this is the case, you didn't "miss" an Iowa credit via the SOL and I would agree with Frankly -- you only owe penalties and interest.

norcalea wrote:However a good whine might get me an extension of my currently discounted package to take some of the pain away.


Now that's an idea!
 

#11
JR1  
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C'mon. This is why you have E&O. File the claim. I"ve filed one in all my years for a big hit like that. No increase.
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#12
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missingdonut wrote:
norcalea wrote:Opinions appreciated thank you.

JAD wrote:If the returns had been accurate, the credit would have been claimed on Iowa.


If the taxpayer was a part-year resident of Iowa and a part year resident of California as described, then on neither return should you be claiming a credit for other state taxes. Each state would prorate the income (California has a schedule CA and Iowa has Form 126) and the taxpayer only pays tax based on the prorated income to that state.

If this is the case, you didn't "miss" an Iowa credit via the SOL and I would agree with Frankly -- you only owe penalties and interest.

norcalea wrote:However a good whine might get me an extension of my currently discounted package to take some of the pain away.


Now that's an idea!



Not quite that clean and clear. Taxpayer worked in California while an Iowa resident. There was CA withholding on the w-2 but no Iowa . Then moved to CA last couple months of the year.
 

#13
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JR1 wrote:C'mon. This is why you have E&O. File the claim. I"ve filed one in all my years for a big hit like that. No increase.


I appreciate the input. I have no idea which why I'm asking.
 

#14
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norcalea wrote:Not quite that clean and clear. Taxpayer worked in California while an Iowa resident. There was CA withholding on the w-2 but no Iowa . Then moved to CA last couple months of the year.


Well, it goes back to that "if" word I used to start my post... the revised fact pattern implies that they were a full-year IA resident and a CA non-resident with CA-source wages. If so, then E&O.
 

#15
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Iowa resident with CA source income until October. Ca Resident last two months. Yes, either E&O or pay it - no doubt error existed.
 


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