This is what scares me about these situations. Did your sister have any idea the preparer was doing shady stuff? Like did she sign the return without reviewing it, or did the preparer hide what they were doing?

She had some suspicions when her refund was so much higher than usual, but the preparer assured her everything was "industry standard" and "completely legal tax strategies." My sister didn't understand all the tax jargon and forms, so she trusted the "professional." The preparer had her sign the final return without really explaining the details, and my sister didn't carefully review what was filed. The reality is that most people don't understand tax forms well enough to catch these issues, which is exactly what these shady preparers count on. When the audit came, the preparer's phone was disconnected and the office was empty.

I tried this approach with a similar situation. I asked the preparer to explain specifically what deductions she was claiming and why I qualified. She got super defensive and vague, saying things like "I have 20 years of experience" and "I know what I'm doing." When I insisted on seeing the actual forms before filing, she tried to rush me through signing. Huge red flag.

That definitely sounds suspicious! You're right that a legitimate tax professional should be able to clearly explain their strategy without getting defensive. I guess the best approach is to ask specific questions and expect specific answers. I still think there's a small chance this person just knows the tax code really well and finds legitimate deductions others miss, but the defensiveness you described would make me walk away too. Thanks for sharing your experience!

I've double checked and it's definitely structured as an IDGT, not a QPRT. The documentation explicitly uses the term "intentionally defective grantor trust" and has the typical IDGT provisions. Does that change your thoughts on the tax treatment?

If it's explicitly an IDGT with the grantor retaining a life estate, then the previous advice is correct. The house should get a stepped-up basis upon your father's death since it will be included in his estate under Section 2036 (retained interests). The basis will be the fair market value at date of death. Keep in mind though that while this provides a tax advantage for capital gains purposes, the value of the house will count toward your father's estate tax exemption amount. Depending on the total value of his estate, this could potentially trigger estate taxes if he's over the exemption threshold.

Yes, an IDGT can do a 1031 exchange since it's treated as a grantor trust for income tax purposes. The grantor is considered the owner for tax purposes, so as long as the new property is also investment property, it should qualify. But the replacement property would also need to be held in the trust under the same terms.

Thanks for the recommendation about those professional organizations. Are they expensive to join? And what exactly do you mean by "limited representation rights" with the Annual Filing Season Program?

The membership fees are pretty reasonable - usually between $150-250 per year depending on which organization you choose. Many offer discounts for new members or students. The benefits far outweigh the costs when you consider the resources, forums, and continuing education they provide. The Annual Filing Season Program gives you limited rights to represent clients whose returns you've prepared in case of an audit. Without this or an EA/CPA credential, you can prepare the return but can't speak to the IRS on behalf of your client if questions come up later. Having representation rights makes you much more valuable to clients since you can help them through the entire process.

How much does tax preparer insurance typically cost? Is it worth it for someone just doing a few returns on the side?

Do you know if before/after school programs count as childcare expenses? My kids are in elementary school but I pay for after-school care until I get off work. My tax software is giving me contradictory information about whether this qualifies.

Yes, before/after school programs definitely count as qualifying childcare expenses as long as they allow you to work or look for work. The IRS is pretty clear on this - any care provided for children under 13 that enables you to work or actively search for work qualifies. The key is that the primary purpose of the program must be childcare, not education. Most standard before/after school programs fall into this category. Summer day camps can also qualify, but overnight camps don't. Make sure you get the tax ID or SSN of the provider, as you'll need to include that on Form 2441.

Thank you! This worked for me too. When I went to the form view, I saw TurboTax had somehow entered part of my childcare expenses in the wrong field. It was counting some of my expenses as "dependent care benefits" from an employer (which I don't have). Once I zeroed out that field and put everything under the actual expenses, it calculated correctly to $600. Thanks everyone for the help! Saved me from either overpaying for the "expert" review or submitting an incorrect return.

Glad it worked for you! I've found that looking at the actual forms is always the best way to catch these errors. TurboTax and similar software try to make things "easy" by hiding the forms behind their interview questions, but sometimes that just creates confusion. For anyone else with this issue, another thing to check is that your care provider information is entered correctly. If the provider's tax ID is missing or formatted incorrectly, some tax software will reduce the credit amount without clearly explaining why.

I've found FreeTaxUSA actually does a better job with these warnings than TurboTax. It explains the actual tax code reasons why something might be questionable rather than just giving generic warnings.