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I think my inexperience cost a client $22,400

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#1
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In 2011, I left Block to go off on my own but couldn't hang a shingle in my county because of a no-compete, so I figured I could do some simple expat preparation services.

I helped a client with a simple return. He has 2 US children. He lives in a country where the tax rate was higher than as in the US, but I prepared the tax returns with the FEIE only.

We could have been using the FTC all of this time and missed claiming additional child tax credit of $2000 for

2011, 2012, 2013 ,2014, 2015, 2016, 2017

and $2800 for

2018, 2019, 2020

Given the filing dates, it looks like I can only amend 2018, 2019, and 2020.

I haven't faced anything like this before and I'm really bummed out. I'm not sure what to do.
Last edited by ItDepends on 24-Feb-2021 10:23am, edited 1 time in total.
 

#2
CathysTaxes  
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Ouch! Maybe this should be moved to PFZ.
Cathy
CathysTaxes
 

#3
ATSMAN  
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One of the many reasons I don't dabble in expat tax prep because I just don't have the time to keep up with the complex laws, cross border tax agreements etc. I probably get asked every season once or twice and I politely decline.

Last tax season the parents of a professional hockey player (plays in Europe, Canada) asked me to prepare his tax return. I took a quick look and declined. I heard he paid a pretty penny to get his tax return done by a NY CPA who specializes in tax returns for personalities who have global income. So I guess if you specialize in complex returns, you can make more money :twisted:
 

#4
CathysTaxes  
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I have a client who is a minor league baseball player. His earnings are so low, about $50 per game, that he doesn't earn enough in other states or Canada to worry about multi jurisdiction returns. It's a very complex situation. For the heck of it, I did a lot of research. When this kid gets to the major league, I will have to tell his Dad (who handles everything with me because the kid is traveling during tax season) that the kid needs to ask a teammate for a referral. Definitely a lucrative business.
Cathy
CathysTaxes
 

#5
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Hopefully you carry E&O insurance...

If you do, I think it's obvious that you should contact them.
 

#6
HowardS  
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The return was accurate but not optimal. Is there really a liability here? Amend what you can...gratis and move on.
Yes, move this to PFZ.
I suffer from depreciation.
 

#7
CathysTaxes  
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I agree with Howard. When I took a webinar on foreign tax, there were three options. Deduct the tax on Schedule A, foreign tax credit, or FEIE. The last option is the most complicated.
Cathy
CathysTaxes
 

#8
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Maybe not "errors and omissions", however does client have a reasonable case for "damages"?
 

#9
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Hasn’t the credit been refundable for only a couple years? How would the taxpayer have monetized the credit?
 

#10
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No, thanks, but the ACTC was refundable in this spot before that.

But...

When you revoke the FEIE, you cant get it back for 5 years without a private ruling. If his situation had changed, or if the tax laws change in his home country or in the US, it could have cost him a LOT more than the credit he may have missed out on.

Also, his income was right at the threshold at that time (which was very low, if we remember) and increasing.

He also has property and his country does not have a traditional capital gains tax. So lots of reasons, I now see, why not to claim it.

There are other factors as well.

The FEIE was a more conservative choice and I'm feeling a little better about it. I also have a ton of E&O. I'm over insured. I now feel like I'll be OK.

This is a great business but it takes nerves of steel sometimes.
 

#11
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ItDepends wrote:When you revoke the FEIE, you cant get it back for 5 years without a private ruling. If his situation had changed, or if the tax laws change in his home country or in the US, it could have cost him a LOT more than the credit he may have missed out on.


That's why you lay everything out. The options, the pros of each option, the cons of each option, the caveats.

Then the client makes an informed decision and you document.

One of my clients switched from FEIE to FTCs last year after a conversation. The client decided the pros outweigh the cons based on forward looking assumptions for that particular client.
 


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