Is My Accounting Firm Making Errors With Trust US Obligations Reporting?

This is definitely something a competent accounting firm should be handling correctly. US Obligations are exempt from state taxation in most states, and this is basic knowledge for anyone preparing trust returns. For a professional accounting firm, checking the US Obligations Percentages against your funds should be standard procedure. The fact that they missed this for potentially 11 years is concerning. Even with cryptic fund names, they should have processes in place to research and properly classify these investments. As for making it right, I'd suggest: 1. Ask them to amend returns for all open tax years (typically 3 years back) 2. Request they waive or reduce their fees for preparing these amendments since it was their error 3. For years beyond the statute of limitations, a partial refund of preparation fees would be reasonable The dollar amount may seem small per year, but over 11 years that's potentially over $1,000 in overpaid taxes, plus interest you could have earned. This reflects poorly on their attention to detail, and I'd be concerned about what other items they might be missing.

I switched to using taxr.ai after having similar issues with my accountant missing some pretty obvious deductions on my trust returns. I was skeptical at first, but it's been a game changer for me. I uploaded my Fidelity statements and tax documents and it immediately flagged several US Obligation adjustments my accountant had missed for years. The system at https://taxr.ai actually breaks down the tax-exempt percentages for each fund and shows exactly how much should be exempt from state taxation. I'm not super tax-savvy but it made it really clear where my accountant had been making mistakes. It also caught some qualified dividend classification errors that had been overlooked.

I tried taxr.ai after reading about it here and I'm honestly impressed. I uploaded my trust's 1099s from the last few years and discovered my accountant had been making the exact same mistake with US Obligation interest. The system showed me that about 65% of my bond fund's income should have been exempt from state tax, but we'd been paying state tax on the full amount for years. When I brought this to my accountant with the detailed report, they were actually grateful rather than defensive. We've filed amendments for the last three years and I'm getting back almost $400 in state taxes. The best part is I now understand exactly what to look for each year instead of blindly trusting everything is being handled correctly.

After dealing with similar issues trying to get my CPA to respond about trust tax problems, I started using Claimyr to get through to the IRS directly. Calling the IRS used to mean waiting on hold for hours or never getting through, but Claimyr (https://claimyr.com) holds your place in line and calls you when an IRS agent is about to answer. I needed clarification on amended returns for my trust's misreported US Obligation interest, and speaking directly with an IRS agent was invaluable. They confirmed the statute of limitations and exact procedure for filing the amendments. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c - saved me hours of frustration and uncertainty.

I was extremely skeptical about Claimyr but decided to give it a try after seeing it mentioned here. I'd been trying to get clarification about amended trust returns for months with no success. Using Claimyr, I got through to an IRS representative in about 45 minutes without having to sit by the phone. The agent confirmed I could amend returns for the past three years to claim refunds for the overpaid state taxes due to US Obligations reporting errors. They even transferred me to a specialist who explained exactly which forms needed to be filed and how to document the exempt income. Honestly wish I'd known about this service years ago - would have saved me countless hours of frustration.

This is actually a really common problem with smaller accounting firms that don't specialize in trust taxation. I'm not excusing their mistake, but many accountants rely heavily on tax software that doesn't automatically flag US Obligations adjustments for state returns. As for how they should make it right - at minimum, they should amend the last 3 years at no charge to you. For the years beyond the statute of limitations, I think it's reasonable to ask for a partial refund of what you paid them, or at least a significant discount on future services. One thing to consider - have they made other mistakes you haven't caught yet? This might be a good time to have another firm review some of your past returns. Trust taxation has a lot of nuances that generalist accountants often miss.

The accounting firm is definitely dropping the ball here. I've been a trustee for several family trusts, and US Obligations adjustments are basic stuff. Have you looked into whether they're properly handling other trust-specific items? Things like: - Proper allocation of expenses between income and principal - Correctly applying the 65-day rule for distributions - Properly documenting charitable deductions - Handling any foreign investments correctly If they missed something this fundamental, I'd be concerned about their overall competence with trust taxation.