Legality of doing gratis returns for family or friends?

Andy comments:

Well, I'm thinking of the "trade or barter" regulation....

It could be held that there is no such thing as doing a "favor" for a family member, if, for instance, one is invited to a dinner afterward, or given a "lift" to a store, or expecting any sort of consideration for the act of kindness...

The only "free tax return" conditions I can see personally is if you do it for a stranger that you have no expectation of ever seeing again.....

I challenge anyone to present an argument that contradicts the above........... Do a good deed --- pay the tax on it !!!!

AndyS

No status. An unpaid preparer does not sign the return.

I don't think the IRS wants to try to prove that my mother wouldn't have invited me to dinner anyway. (Not that I do her tax return, but that's the principal.)

Seth

Doing things for or giving things to family members out of a sense of generosity and expecting nothing in return is the essence of a gift. Even though you might get something in return, that also is out of a sense of familial generosity, and is not in any way considered compensation.

It would be different from someone who is not a "natural object of your bounty," such as a stranger. In those cases some bit of generosity (e.g. giving a tip to a waiter) in exchange might well be considered taxable.

There is no reason why that should be any more a gift, and (from a legal standpoint at least) there is every reason why it might be considered more taxable.

___ Stu

To eFile the return you need to use either your own social security number or PTIN number. In the past getting a PTIN number and EFIN number was free, so I suppose you could just eFile it without signing the return. But now the PTIN costs $64 a year, plus another $120 or so for the exam, plus anywhere from $0 to $500 to prepare for the exam.

To efile a return you need to buy a copy of TurboTax. Actually, the allows you to efile 5 returns.

I've done that for my sons' for years and efiled those returns using TT. I don't charge them. I don't sign the returns. Even now, when I'm in tax practice myself, I do NOT have taxable income for doing my sons' tax returns.

Spot on IMO. When I worked at the IRS we were, of course, prohibited from doing returns for pay. Specifically mentioned as allowed was doing returns gratis for friends and family. And they never probed about unreported barter income arising from such.

Phil Marti VITA/TCE Volunteer Clarksburg, MD

SNIPPED a lot

I understand and agree with this as it follows the letter of the law.

SIDE ISSUE - as a licensed tax professional you're held to a higher standard than as a dad helping his son. It is my understanding that a tax pro who does a return for free is still subject to the same level of professional liability as if he HAD charged a fee. Essentially, you can't get of the obligation to do it right just because you didn't charge.

NOTE - I am NOT suggesting that you, or any other tax pro, would do a shoddy job because it?s a FREEBIE return. Rather, what I'm suggesting is that once you become licensed or registered you have to adhere to a higher standard.

Gene E. Utterback, EA, RFC, ABA

If true, an exception apparently exists for a professional (CPA/EA/Atty) while volunteering thru a recognized IRS program such as VITA or TCE. One of the things stressed in the training is our lack of personal responsibility except for willful acts, as provided by the Volunteer Protection Act of 1997, PL 105-19

I don't know if what Gene says is true but it certainly makes sense. I don't believe one becomes liability proof just because they charge no fee. I know a physician remains liable for his actions whether he charges a fee or not unless he falls under VPA 1997.

You are correct that anyone who volunteers through VITA/TCE or any of the organizations operating under that umbrella (e.g., AARP Taxaide) is shielded from liability by VPA 1997 as long as they perform within the scope of their responsibilities. This law protects all volunteers for all nonprofits and government entities as long as their compensation does not exceed $500.

I agree.

A Circular 230 legacy tax preparer approved in a VITA or TCE program has just as much or as little liability as any other certified volunteer.

I say this as such a preparer approved in both VITA and Taxaide programs.

And all circ 230 legacy volunteers still must pass the VITA/TCE tests in order to prepare returns in these programs.