Preliminary Work with Taxpayer Data

Start with the taxpayer, the tax year and the people potentially reported on the return. Confirm names and identification numbers against records, then ask about marriage, separation, birth, death, moves and time abroad. A household change can affect more than the dependent entry: it can change filing status, credit eligibility and who has a filing obligation. Collect the facts before accepting the client’s conclusion that someone is a dependent.

Use the prior return as a comparison checklist. Mark recurring wages, interest, retirement distributions, business activities and carryovers. For each item missing this year, establish whether the activity ended, the document is late or a new payer replaced the old one. A prior capital-loss carryover requires the prior computation, not a guess based on last year’s refund. Document the reason for each material change so another preparer can follow the file.

Information returns are evidence, not an exclusive list of taxable income. A payment can be taxable even if no information return arrives. Conversely, a bank deposit can be a transfer, loan or return of principal. Reconcile the underlying transaction to the document instead of adding every dollar from every statement together. If two forms report the same sale or receipt, identify that duplication in the workpaper.

When records conflict, identify exactly what cannot yet be determined. A broker statement with proceeds but no basis calls for purchase records and adjustment history. A business payment total that differs from the books calls for reconciliation of fees, refunds and timing. Do not solve an evidence problem by selecting the number that produces the lowest tax. The next useful action is a targeted request for the missing record or explanation.

A useful intake note states the fact requested, its source and the decision it affects. “Need more information” is weak. “Need the child’s overnight residence calendar to determine the custodial parent” gives the client a concrete task. Once the evidence arrives, move to the relevant rule lesson. Intake does not itself settle qualifying-child tests or the amount of a basis adjustment.

Before treating the file as ready, reconcile income completeness, carryover continuity and unresolved household questions. Confirm whether an extension or additional payment needs consideration while records are outstanding. An extension generally changes the filing deadline, not the time to pay. The exam often tests this order of operations: investigate an inconsistent fact before applying an otherwise familiar rule.