941 SFRs

[webhick]

I've got a new client who is a little behind on his payroll taxes. I've done plenty of payroll corrections and backfilings, but this is the first time I've encountered a situation like this. Long story short:

• Per what the IRS told my client, the first three quarters of 2006 are SFRs.
• Per my client the last quarter was done correctly by their CPA...but I'm starting to get conflicting information on this and am working to clear that up.
• There was an employment security audit at the beginning of this year which issued findings on 04/10/08. These finding included misclassified employees which resulted in approximately $6k in additional wages.
• The Q1 and Q2 SFRs are in my possession. It appears that the client ignored them completely.
• I have account transcripts for the first three quarters.
• All three account transcripts show a return being filed on 08/27/07 (this is about three months after the IRS attempted to get the client to sign off on the SFRs and the tax assessed matches the SFRs) and an "amended return" being filed on 07/07/08 with the tax assessed on 09/22/08.
• The client attempted to file a four quarter 941 on May 27, 2008 (with calculation errors, no less). It appears that the IRS rejected it for the obvious reason that you can't file all four quarters on one return.
• The IRS told my client that those first three quarters need to be amended.
• These folks are not good with paperwork retention, so me not having something doesn't indicate anything.

So, with my mind muddied, I'm confused as to how to proceed. I've called up the IRS twice to ask for general advice and all they keep doing is telling me that I should get third-party designee, but the client keeps ignoring my requests to do so.

I think that I just need to file 941s for those first three quarters, but the amended returns are making me question it. I suppose it's perfectly plausible for there to be additional SFRs on the account considering that the ES audit found more wages which could have triggered the IRS into correcting the account. If I take one quarter and add up all the corrections it amounts to about what I'm calculating for a 941. Does that sound about right to anyone here...that there can be SFRs that are amendments?

I suppose that I could ask the client to get me copies of all those SFRs but I'm having such a difficult time getting anything out of her. And to be honest, I have already asked for that. I initially told her to get copies of anything on the account. And all I got was transcripts. I've been requesting the 2006 Q4 for two weeks and when she finally gave me "it", "it" happened to be all the 941s for 2005. Now she's backpedaling whether or not the CPA did the fourth quarter. I'm about to smack her.

They've also made payments on those SFRs and I'm just a bit perplexed as to what to put in that "total deposits for this quarter" box. I think I can work out how much was actually paid on the taxes and not interest and penalties, so do I put that in the box or do I leave it blank?

And, offhandedly, does anyone know if the IRS is now outsourcing to India? I can't understand these reps to save my life.

That's about it, I guess. Sorry if this is a little schizo, there's a lot on my mind right now.

[Arthur Rubin]

My, my.

This is beyond my expertise, as well. Perhaps you could try to get an invite to http://groups.yahoo.com/group/taxprofessionals/ ?

[Quixote]

They've also made payments on those SFRs and I'm just a bit perplexed as to what to put in that "total deposits for this quarter" box. I think I can work out how much was actually paid on the taxes and not interest and penalties, so do I put that in the box or do I leave it blank?

The "total deposits for the quarter" line is irrelevant to the processing of the 941. It's just there so the "amount due" line has some context.

Don't worry about getting copies of the SFR returns. I have never seen one that had any useful information on it. Transcripts showing details of the FIT, and social security and medicare wages currently reflected on the accounts are more useful.

Once you've found out what has posted to the 4 quarterly accounts and determined from your client's records what should have posted, take a page from IRS's book and file a corrected 941 for only the 4th quarter. (The Combined Annual Wage Reconciliation (CAWR) program matches up the information on the W-2s and the 941s. If additional tax needs to be assessed, it is always assessed on the last quarter for which a return was filed for the year in question, usually the 4th quarter.) If that's good enough for the IRS, it ought to be good enough for your client.

[webhick]

Thank you guys, I definitely have a direction to go in now. And Quixote, I didn't realize that you can just file the fourth quarter with the whole year's information. Not that I would do that for anything but a situation such as this, but it is very good to know for the future.

[notorial dissent]

My opinion, fwi, is that you might just as well decide that you are going to have to reconstruct what the last year actually was and try and compare it to what was or wasn’t filed, and then be prepared for the mess you have to look forward to.

I once worked for a time for a law firm whose idea of accounting, prior to the coming of the new comptroller, that I worked for, was to put out a box of checks that any of the partners could sign, and then at the end of the year they would more or less make up a set of books out of the client statements, bank statements and bills they had “saved” over the year. Sound familiar. Needless to say, the IRS audited them, the Comptroller who was ex-IRS, said it was the first time she had seen an auditor give up and leave in tears. He couldn’t find anything wrong, there wasn’t, they were just incredibly poor bookkeepers. She, however, recreated the books and accounts down to a small margin of error/writeoff that matched the records we had, they had a real accounting system from that time on. Did I add that this was also a partnership with partners coming and going throughout the year?

I do think, that if you intend on keeping this client, and I strongly suggest you consider this carefully, you may well want to recreate their books and accounts, so that at least one of you has a clue as to what is going on, unless you like ongoing mystery and constant correspondence with the IRS.

In any event, good luck.

[webhick]

My opinion, fwi, is that you might just as well decide that you are going to have to reconstruct what the last year actually was and try and compare it to what was or wasn’t filed, and then be prepared for the mess you have to look forward to.

Mostly done already. We were contracted to clean them up and get them from Quicken (personal not H&B) into QuickBooks. They're being chased by the IRS on the payroll problems, so it was decided that the payroll is an emergency and needed to be handled first. So I used my excel payroll ledger (sprinkled with magical bookkeeper pixie dust) for 2006-2008. I've got all the figures compiled (including the underwitheld FICA) using a combination of the Quicken file, the half-assed timecards, and the audit results and I've already got my adjustments to the file prepped and verified. 2007 and 2008 941s are now filed (and, of course, the 2007 940). I'm getting the state forms done for this Friday (their schedule, not mine).

I once worked for a time for a law firm whose idea of accounting, prior to the coming of the new comptroller, that I worked for, was to put out a box of checks that any of the partners could sign, and then at the end of the year they would more or less make up a set of books out of the client statements, bank statements and bills they had “saved” over the year. Sound familiar. Needless to say, the IRS audited them, the Comptroller who was ex-IRS, said it was the first time she had seen an auditor give up and leave in tears. He couldn’t find anything wrong, there wasn’t, they were just incredibly poor bookkeepers. She, however, recreated the books and accounts down to a small margin of error/writeoff that matched the records we had, they had a real accounting system from that time on. Did I add that this was also a partnership with partners coming and going throughout the year?

Sounds fun! And I'm not being facetious. I love piecing together messes like this.

I do think, that if you intend on keeping this client, and I strongly suggest you consider this carefully, you may well want to recreate their books and accounts, so that at least one of you has a clue as to what is going on, unless you like ongoing mystery and constant correspondence with the IRS.

Re-creating books from existing paperwork is my company's bread and butter. We do it so much that we have a tried and true system for getting it done as quickly and inexpensively as possible. People give us their paperwork and we put it all together (or clean up after a terrible bookkeeper) and either keep them on as a steady client or train a designated person to do the work from there-on in.

In this client's case, he has had a series of bad bookkeepers, a know-it-all wife, and an absentee CPA. The current bookkeeper he has was trained by a previous crap bookkeeper and the wife. She knows what she was told to do was wrong but she is too inexperienced to know the right way or help the owners into compliance. She's already demonstrated a willingness to do it right by implementing the first round of changes immediately and seems quite happy with them. We'll see how the second round goes.

[Quixote]

I didn't realize that you can just file the fourth quarter with the whole year's information.

I am not suggesting it as a general rule, but if SFR returns have already been filed and one or more "corrected" 941s have been filed, you really want to keep your moving parts to a minimum.

[webhick]

I didn't realize that you can just file the fourth quarter with the whole year's information.

I am not suggesting it as a general rule, but if SFR returns have already been filed and one or more "corrected" 941s have been filed, you really want to keep your moving parts to a minimum.

Understandable. I don't plan on using it all the time, just in really rare cases.

[notorial dissent]

Actually, I have to admit that was one of the more interesting and entertaining years I have put in in a long time, the reconstruction part is fun, I’ve done it for several different companies, but not intentionally to start with.

If you have good software to work with and know what you are getting into going in, it isn’t bad. I was just afraid you had one like I did who had lousy books and really didn’t want to get them straightened out. He was kind of living in a fantasy world and I just wasn’t interested in taking up residence.

[Demosthenes]

Sounds fun! And I'm not being facetious. I love piecing together messes like this.

You would thrive in civil litigation forensics.

[Judge Roy Bean]

....
Sounds fun! And I'm not being facetious. I love piecing together messes like this.

Oh dear. This cries out for involuntary confinement.