I have a new client, a construction contractor. He had a transaction where a friend made a 3-month loan with no documentation such as a promissory note to my client, his check the contractor lender said in the memo line "shop", the money was paid back in 3 months with no interest, and the transaction was 135k. I questioned this notation, the spouse said she made a mistake, it was a loan. My client received an incoming wire from a Title Company for 118k, which comes into the corporation for about two weeks and then goes out of the corporation to buy a piece of property in Texas in this person's name, my client says the money is a gift from his father. So 135k comes in and it comes out, 118k comes in and it comes out. I am trying to get a handle on what is going on here; does not make any sense, do I have a right to know? I have asked for canceled checks and images, and I have asked for the settlement statement involved in the wire transfer; my client acts as though I have no right or business looking at the supporting documents for the incoming wire deposit to his account for 118k.
Any thoughts on what is happening here? Do I have an obligation as the tax preparer to review documentation in this case?
He sold his primary home, he did most of the work himself, and he wants to add the value of his work to the cost basis of the home; I told him this cannot be done, and only his actual costs will attribute to the basis of the property sold. I have asked for a review of his construction receipts, but he is not complying with that request.
I have asked for the personal bank statements, they the husband and wife say they will not provide the statements and that I should rely on their representations that there is no commingling of corporate revenues to their personal account.
I have a signed engagement letter. They are husband and wife and together they are the sole shareholders in their S corporation Construction business. I am interested in your thoughts.