My client just sent me an audit notice from IRS asking for proof of AMT paid in prior years. They are adjusting the 2020 1040 $10k + $3k in penalties/interest. I explained the following sequence of events:
1. The first year return I prepared for them was 2017.
2. During the first year prep I asked for copies of 2015 and 2016 returns.
3. On 2015 return it had a credit carryforward of $110,000 on form 8801 and 2016 had another carryover to 2017.
4. I prepared 2017-2020 returns based on this information.
5. After speaking with client about the audit notice I requested copies of prior years to try and track down when this credit happened.
6. On 2012 1040 there is a small AMT tax of $450
7. On 2013, I discovered what appears to be a huge error. Form 8801 line 19 "2012 credit carryforward. Enter the amount from your 2012 Form 8801, line 28". On this line is $122,051. The problem is on the 2012 return there is NO form 8801. This amount matches exactly to form 6251 line 28. Big difference between 8801 line 28 (credit carryforward) and 6251 line 28 (AMTI).
All returns 2012 - 2016 were prepared by the client on TurboTax.
Total AMT credits taken in 2013-2020 is $51,000.
I can't imagine that form 8801 is prepared by the taxpayer inside of TurboTax. It's possible that TurboTax itself made this error.
For starters, I am going to place a call with my insurance carrier and notify them of the situation.
But my questions are about my own liability and what the taxpayer should do. Looking back, I should have asked for copies of those earlier returns to try and find this extremely large credit to make sure it was accurate. An AMT credit that size seems too big. But on the other hand, these are filed tax returns and am I responsible for verifying every single line on prior tax returns? How far back am I supposed to go? I prepared 2017 based on the information I had and for all I knew the client might have been extremely rich with wildly successful businesses before he hit hard times and came to me for tax help.
Thoughts on how to proceed?