By topic: Audits

Do You Need to Amend Your 2020 Tax Return for the 2020 ERC?

The time for individuals, including single-member LLCs taxed as sole proprietors, to get the 2020 Employee Retention Credit correct is here. And this is true even if you have applied for but not yet received the credit. For corporations and partnerships, the time may be past, but this article sheds light on what you need to know.

CPA Steals the Payroll Taxes, Owner Has to Pay the IRS

Who does your payroll? Could they embezzle the payroll taxes? What does the IRS do to you if someone embezzles your payroll? To find out, make sure you read this article.

No Mercy for You When Your CPA Does Not File Your Tax Return

What happens if your certified public accountant (CPA) or other tax preparer fails to electronically file your return? You’re out of luck. The IRS and courts say you, the taxpayer, are responsible for filing your return. If your CPA fails to do so, the tax code treats you as the culprit and levies penalties against you.

Your Co-owned Business Probably Needs a Buy-Sell Agreement

Do you co-own your business with one person or multiple people? If so, you should have a properly funded buy-sell agreement in place, as explained in this article.

How Long Does the IRS Have to Audit Your Returns?

The IRS can’t take forever to audit you. Once the statute of limitations expires, the IRS can’t audit your return or assess any additional tax. Most returns must be audited within three years after they were due or filed, whichever is later. But the IRS has much longer to audit returns where taxpayers severely underpay their taxes, commit fraud, or file no return at all. Moreover, there is a longer statute of limitations for certain Employee Retention Credit audits.

The IRS Dirty Dozen List: More Than Just a Gimmick

The IRS’s annual Dirty Dozen list may sound like a gimmick, but taxpayers should take it seriously. It’s a road map to current IRS audit priorities and a warning to taxpayers and tax professionals to avoid fraudulent and abusive tax schemes or strategies. Use of a strategy on the list can not only result in an audit, but make it impossible to avoid substantial tax penalties.

Improper ERC Claim? Pay Back 80% of the ERC and Keep the Rest

First question: Is your ERC claim improper? Are you sure? If you’re sure, the IRS has a proposition for you. Pay back 80 percent of all your ERC claims, and keep the remaining 20 percent. But hurry, this deal expires soon.

Updated Jan. 2024: Download IRS Key Contact Information and Links

Would you like to have, at your fingertips, updated IRS key contact info and helpful links for information about amended returns, estate and gift taxes, tax transcripts, power of attorney, stimulus checks, tax help for businesses, and many other topics? If so, download the PDF linked in this article.

The ERC Story: From Double Benefits to IRS Warnings

From its origins in the 2020 CARES Act to the 2023 IRS alerts and warnings, the Employee Retention Credit (ERC) has undergone significant shifts. Discover the pivotal changes, and see how this tax credit’s twists and turns could impact your business.

Don’t Let Your Weekend Gambling Create a Tax Nightmare

If you gamble but are not a tax-law-defined professional gambler, you need to know the gambling rules to avoid a tax nightmare. One rule to know: the casino or other payor of your winnings may report your winnings to the IRS.

IRS Makes a Mess of the ERC—What to Do Now?

The IRS is on a tear against improper ERC claims, and this intimidates some tax professionals and business owners. Read this article for insights on what’s going on and what you need to consider.

Failed Mileage Log Negates Mileage Deductions

Learn how your failure to keep an adequate mileage log costs you time and money during an IRS examination and then can result in no vehicle deductions, as it did for this business taxpayer.

Don’t Expose Yourself with Improper Use of the $75 Rule

Confused about when you need a receipt for a business expense? The rules can be tricky. Don’t risk getting it wrong. Here’s what you need to know about the $75 receipt rule.

Desktop Reference Download: Taxpayer Penalties—2023

Lawmakers create tax penalties to help ensure compliance with the federal income tax system. You may want this handy two-page PDF on your desktop because it gives you a quick reference to the penalties, penalty amounts, and tax code sections that create the penalties.


Tractors, Antique or Not, Are Deductible

How many tractors does a farm need? Could it need 46 tractors? The IRS said no, but this taxpayer took the IRS to court and won on the tractor issue.

$80 Billion to the IRS: What It Means for You

The Inflation Reduction Act gives the IRS an additional $80 billion over the next decade, enabling it to add thousands of new employees and upgrade its operations. Audits will increase over the next few years, but not for everybody. High-income taxpayers will be in the IRS’s crosshairs.

I Won My Home-Office Deduction

During an IRS audit, this taxpayer and his CPA won their case by being persistent and using two articles from the Tax Reduction Letter.

Overcoming the IRS Audit That Incorrectly Attacks Deductions

The IRS examiner can make a mistake. But the question is: Will you know it’s a mistake? In the situation described in this article, the tax code contains the answer. The taxpayer simply had to be familiar with it.

C Corporation? Beware of the Hidden Tax

Are you loving the 21 percent corporate tax rate and now keeping more money inside the corporation? If so, beware of the accumulated earnings tax. You can easily overlook it. You likely don’t have the proper documentation to avoid it. And it’s expensive.

IRS Says Your Independent Contractors Are Employees: Use the CSP

The IRS Classification Settlement Program (CSP) offers a chance to settle your employment tax debt due to worker misclassification if you do not qualify for Section 530 relief. CSP agreements typically result in a substantial reduction of assessed employment taxes, especially if you misclassified workers over several years.

$75 Receipt Rule for Business Vehicles

Under tax law, your business vehicle is considered “listed property.” The IRS has a regulation that applies the $75 receipt rule to listed property.

IRS Examiner Gives 80 Percent

During an audit, IRS examiners can use their judgment to allow or disallow pretty much whatever they want. In this first stage of the audit process, the burden of proof is on you.

Avoid This Payroll Tax Nightmare

If you are involved in a financial sense with a taxpayer and that taxpayer has a payroll tax problem, be aware that the situation could become your problem, as it did for Mr. Kazmi in this instance.

It’s Tax Filing Season—Mail Correctly to Avoid IRS Trouble

If you need to file a document with the IRS by a specific deadline, don’t rely on regular U.S. mail. Instead, use certified or registered mail or an IRS-approved private delivery service. This way, your document will be deemed filed on the postmark date even if the IRS loses the document or claims that it never received the document.

Owe Taxes for Misclassified Workers? Section 530 to the Rescue!

The Section 530 safe-harbor provisions allow employers to avoid penalties, if certain tests are met, on workers improperly classified as independent contractors. The employer must have filed all appropriate federal tax returns, treated similar employees consistently, and had a reasonable basis for classifying the individuals as independent contractors.

Don’t Rob Yourself of the Home Internet Deduction

If you do some work at home, you’re probably using your home internet connection. Are your monthly internet expenses deductible? Maybe. Home internet expenses can be deducted by business owners in the same way as home utility costs. But a lack of good records can booby-trap this deduction.

Is Your Sideline Activity a Business (Good) or a Hobby (Not Good)?

If you operate a sideline business that produces tax losses that you deduct on your Form 1040, beware. The IRS can attack that sideline business as a hobby. If the IRS wins, you lose—and you could lose big.

Updated: Download IRS Key Contact Information and Helpful Links

Would you like to have at your fingertips updated IRS key contact info and helpful links for information about amended returns, estate and gift taxes, tax transcripts, power of attorney, stimulus checks, tax help for businesses, and many other topics? If so, download the PDF linked in this article.

IRS Audit: Short-Term Rentals

When you are under an IRS audit and you need a citation that helps you, where do you find that citation? See what the tax professional in this article found that helped his client win the deduction.

IRS Audit: Both IRS and CPA Wrong on This Rental Property Audit

In this IRS audit, both the IRS and the CPA held the incorrect position that the taxpayer had to materially participate in a rental property for more than 500 hours in order to deduct any losses or cost segregation.

Be Sure to Know the Tax-Home Rule

When you travel out of town overnight, you need to know the tax-home rule. The IRS defines your tax home, and it’s not necessarily in the same town where you have your personal residence.

1099s Tell Story on Dentist

Here’s a sad story of a dentist who did not file his tax returns. Of course, as you know, the failure to file tax returns often gets the IRS’s attention. In this case, it did, and this dentist suffered accordingly.

Why IRS Audit Technique Guides Are Helpful Business Resources

IRS Audit Technique Guides provide valuable insight as to how the IRS conducts audits. The guides also provide helpful guidance in developing financial best practices for your business.

IRS Private Letter Rulings: Are They Worth It?

The IRS issues private letter rulings (PLRs) to answer taxpayers’ questions about how to apply the tax law to a set of facts or how to obtain relief for late filings and other errors. A PLR is binding on the IRS as to the taxpayer who receives it, but no others. PLRs are expensive, require a detailed application, and can take months to get. You can often find much cheaper and easier alternatives, especially if you need the IRS to waive a missed deadline.

Payroll Taxes Embezzled; Owner Has Huge Business and Tax Problems

Do you own a business that withholds taxes from employees? If so, you need 100 percent assurance that the withheld payroll tax monies are going to the IRS and not into the pockets of an embezzler. This article explains how you can obtain such certainty.

Big Mistake: Filing Your Tax Return Late

What one mistake can you make with your taxes that will cause you to pay penalties of up to 47.5 percent? And when might that not even be the worst part? What could be worse than a 47.5 percent tax penalty? How about both the penalty and a full-blown IRS audit? That’s far worse.

Two Ways to Fix Tax Return Mistakes Before the IRS Discovers Them

It’s easy to make a mistake on your tax return. The tax law is complicated and always changing. If you did make an error, it’s not the end of the world. The tax law gives you two ways to undo your mistake at little to no cost to you. We’ll go over the two ways and how you can use them to your best advantage.

IRS Makes Income Limit Mistake on the Home-Office Deduction

What happens if the IRS makes a mistake in its publication or instructions? Is this your problem? How would you know if the IRS made a mistake? This article explains a mistake on the gross-income limit in the IRS home-office publication. Make sure this mistake is not costing you money.

Find the Winning Tax Law for Your IRS Audit

If you are suffering or about to suffer an IRS audit, you should know how your tax positions stack up against the IRS examiners’ positions. In most cases, you are discussing the facts, not the law, and you prove your facts with receipts, canceled checks, and logbooks. Once you get into the law, however, you need to know the rules that trump other rules. This article explains how you use the tax law, rulings, and other IRS documents to prove the legal side of your case in an audit. And this article helps you understand what the courts are looking for, should your case advance beyond the IRS audit to the courts.

How the IRS Lost $55,000 in This IRS Rental Properties Audit

The thought of an IRS audit is a worry—no question about it. But it’s worse when the IRS wants a lot of your money. And it’s even worse yet when the IRS wants your money because it interprets the law incorrectly and, at the time you see the IRS adjustment, you have no idea whether the IRS is right or wrong.

Congress Closes the PayPal 1099-K Reporting Loophole

The PayPal loophole is going away seven months from now. You may remember the strategy where you can avoid giving 1099s to contractors and vendors when you use PayPal or a similar service as your payment platform. In the past, PayPal often did not have to provide those contractors and vendors with a 1099. According to lawmakers, this created a situation where those people who use PayPal have an easy ability to cheat (i.e., not report the income on their tax returns).

IRS Audit Issue: SUV Built on Car Chassis

When is an SUV a car, and when is it a truck? How big is the difference in deductions? Does the SUV built on a car chassis get different treatment from the SUV built on a truck chassis?

Know These Four Magic Business Mileage Rules

Learn these four business mileage rules. With them, you have a roadmap to the best tax benefits. And if you ever suffer an IRS audit, these four rules will save your bacon.

Disaster Strikes: Next Trouble, an IRS Audit

Disasters can happen at any time. As far as your business records go, you’ll be most equipped for a disaster if you’ve backed up and stored your most critical data online. To the extent you fail to do this, you’ll have to get copies of vital records from the IRS and other government agencies, your bank, clients, customers, and others. You’ll have to re-create other data as best you can.

Congress Passes Corporate Transparency Act: What It Means for You

Today, you can form an LLC or a corporation in most states without revealing your identity to any government agency. But this pro-secrecy era is coming to an end because Congress passed the Corporate Transparency Act. Starting in 2022, the names and addresses of many LLCs’ and corporations’ beneficial owners will have to be provided to the U.S. Department of the Treasury. The information won’t be made public, but law enforcement will use it. The law impacts both new and existing LLCs and corporations which will have a new federal filing requirement.

Secrets to IRS Penalty Forgiveness Using Reasonable Cause

The reasonable cause defense offers an opportunity to waive tax penalties, but only if you supply sufficient explanations and documentation. To assert a successful reasonable cause defense, you must demonstrate that you used ordinary business care and prudence regarding your tax obligations and that despite your best efforts, you were unable to comply with the law.

Avoid Trouble: Don’t Let the IRS Set Your S Corporation Salary

Have you set your S corporation salary so you can save on payroll taxes? If so, are you using one of the three approaches to establishing that salary that are contained in the “Reasonable Compensation Job Aid for IRS Valuation Professionals”? You should be.

What Is the Unpardonable Sin in an IRS Audit?

COVID-19: IRS Provides Relief from Enforcement Actions

During the COVID-19 pandemic, the last thing you need is the IRS doing bad things, like auditing you or levying your bank account or wages. But don’t worry—the IRS is pausing most of its collection and audit enforcement actions. When you read the article, we’ll tell you what it is stopping and for how long.

Auditor Claims It’s Illegal for Parent to Employ His 11-Year-Old

When you employ your children to work in your business, make sure that you are ready to answer questions from both the IRS and the Department of Labor. The answer to the question in this article may come as a surprise as to what triggered the problem.

2019 Brings You New Partnership Audit Procedures

Congress changed the IRS procedures for auditing partnerships, and they apply beginning with your 2018 partnership tax return. Under the new rules, an audit can lead to a partnership-level tax at a 37 percent rate. We’ll explain the new rules and how your partnership can potentially avoid paying this new audit tax.

How Corporations Reduce IRS Audits of Home-Office Deductions

You have probably read that the home-office deduction increases your chances of IRS audit. We’ve read that, too, but we don’t believe it. Regardless, there are a few things you can do to make your home office less likely to ever appear in an audit.

Q&A: The IRS Audit Is Wrong on First-and-Last-Stop Rule

In this IRS examination, the examiner mistakenly applied the first-and-last-stop business commuting rule. We explain what the IRS got wrong and what documents can be used to overturn the IRS’s decision.

Avoid This Super-Costly Mistake with Your Payroll Taxes

Is your last payment of payroll taxes in the hands of the IRS or in the hands of an embezzler? How would you know? There’s one easy way to know: simply use the IRS’s online service to check. But that’s a bit of trouble, so why bother? Because if the money has been stolen, you (1) are out the original money and (2) now have to pay a duplicate amount to the IRS. If you have to pay twice, you are going to be furious. Don’t let this happen.

Q&A: Can the IRS Require Odometer Readings with the Mileage Rate?

What proof of mileage do I need if I’m using the IRS standard mileage method? Can the IRS require me to provide odometer readings as proof?

Update on New Court-Approved Way to Defeat IRS Penalties

The Tax Court gave you a brand-new penalty relief strategy back in December 2017. Since then, both the Tax Court and the IRS have told us more about how they view tax code Section 6751(b). In this article, we update you on the most recent tax cases relating to your use of Section 6751(b)—and one of them is a big help to you in your battle against IRS penalties.

Fraud by Tax Preparer Creates Big Trouble for Client

In this precedent-setting case, the Tax Court had to decide for the first time whether a tax preparer’s fraud extends the statute of limitations for the IRS audit of the client’s return even when there is no charge of fraud against the client. Because this court ruled against the taxpaying client, according to precedent, a tax preparer’s fraud now extends a client’s allowable audit period from three years to forever.

Taxpayer Saved 15 Hours of Paperwork, Lost $35,000 to the IRS

How much per hour do you collect in tax savings when you keep the right tax records? We don’t know for sure, but it’s a lot of money. We estimate that with the right records, the taxpayer in this court case would have earned about $2,333 an hour. And the thing is, the records this taxpayer needed in this case are very easy to keep.

Avoid IRS Audits: Fix the 1099 Prepaid-Rent Mismatch

You don’t want a 1099 that reports an amount that differs from what you report on your tax return, because the IRS computers will pick that up and start an inquiry. When you prepay rent, your accounting method for preparing your 1099 likely creates a mismatch between you and your landlord. Here’s the technical correction when you have a mismatch and how to implement it, and a bigger tip on how to avoid mismatched reporting to begin with.

Hit with IRS Penalties? Pay $0 with IRS Mercy

As a small-business owner, you have good odds of someday facing a penalty for late filing and/or late payment of your or your corporation’s taxes. It’s likely you will think that you have to pay the penalties. But as you’ll learn here, when you know the rules of the road, you can travel the IRS mercy path and have those penalties forgiven.

Q&A: Changes to IRS First-Time Penalty Abatement

You hate IRS penalties; everyone does. The IRS’s first-time abatement procedure is a valuable tool to defeat IRS penalties. This article explains recent changes to this procedure and how they could affect your ability to qualify for this relief.

New Court-Approved Way to Defeat IRS Penalties

You hate IRS penalties, right? Everyone does! There are a lot of strategies you can use to potentially defeat an IRS penalty. Thanks to the courts, though, you now have a brand-new way to beat an IRS penalty.

Q&A: How to Make IRS Penalties Go Away

Download your free resource guide titled Beating IRS Penalties, Your Guide to Reducing or Avoiding IRS Penalties.

Entertainment Tax Deductions Look Fishy

It’s true—you don’t need a receipt for an entertainment expense that is less than $75. But you may need to prove that you had the cash available to pay for your entertainment that cost less than $75.

Yikes! New IRS Audit Tool: The Form 1099-K Letter

The 1099-K gives the IRS another audit weapon. In this article, you see how an IRS revenue agent uses the 1099-K to catch taxpayers who underreported their gross income. You also learn why you are likely to receive a letter from the IRS auditing or asking about your 1099-K amounts.

Abandoned by Tax Advisor, Taxpayer Wins IRS Audit

The woman in this audit learned how tax knowledge can turn what appears as a nightmare (an IRS audit) into a positive happening—meaning cash refunds for the year of the audit and subsequent years. As the old saying goes, “knowledge is power.”

Five Tried-and-True Strategies for an IRS Audit

If you’re like millions of taxpayers, just the thought of an IRS tax audit has you shaking in your boots. Luckily, you came across this article. In the next few moments, we will put those fears to rest as we show you how to keep all your rightful tax deductions.

Arguing with the IRS: Making the Courts Help You (Part 2)

When you and the IRS disagree about an item on your tax return, you need authority on your side to either win your case or avoid a penalty. Court decisions can be a valuable authority to convince the IRS that you are right. We’ll discuss the various types of court decisions and which ones can help you the most.

Arguing with the IRS: You Need Tax Authority (Part 1)

Sometimes you and the IRS disagree about an item on your tax return. When that happens, you need authority on your side to either win your case or avoid a penalty if you don’t win. The Internal Revenue Code and certain IRS interpretations of it can be that authority, and we discuss them here.

Tax Audit Tips for Travel, Entertainment, and Education

If you don’t have tax records as you are reading this sentence, think of this: how would your tax records hold up in an IRS audit? Oops, we forgot. You don’t have them. See what generally happens when you create those records after you get the IRS audit notice.

Beating Penalties for Misclassifying W-2 Workers as 1099 Contractors

The IRS hit the Mescalero Apache Tribe with a bad result in an employee classification audit. The tribe took the IRS to the Tax Court and forced the IRS to turn over records on the tribe’s workers’ tax payments that will substantially reduce its tax bill. If you have a worker classification issue, you will want to know what the tribe did and why.

Warning! The IRS Is Outsourcing Tax Debts to Private Debt Collectors

A new law requires the IRS to send its inactive tax debts to third-party private debt collectors. If this happens to you, you need to know how this program works including what to expect and what rights you have.

Unpaid Taxes? Goodbye Passport

If you have “seriously delinquent tax debt,” IRC Section 7345 requires the IRS to certify that debt to the State Department for action against you. The State Department then must refuse to issue or renew your passport, or it can revoke or limit the use of your current passport. To get your passport back, you need to get right with the IRS.

Yes, You Can Settle Your IRS Tax Debts for Less Than You Owe

The IRS can give you monetary mercy regarding your unpaid tax debts by settling them for less than you owe via the offer in compromise program. Like anything with the IRS, this process is not easy, but the result could save you tens of thousands of dollars. We walk you through how to determine whether you qualify and what you could end up paying.

Are Tax Return Preparer Penalties Increasing Your Taxes?

How does tax law make your tax preparer part of the IRS tax compliance workforce, and what does that mean for your tax return? First, you should and can put yourself in a position to help your tax preparer avoid tax preparer penalties. For example, if your tax preparer is dubious about a deduction you want to claim, provide your preparer with the proof that the deduction is valid.

Enlist the Taxpayer Advocate to Help You Alleviate Tax Problems

You might have a friend in the government you don’t know yet. The Taxpayer Advocate Service is an independent office within the IRS that helps taxpayers solve IRS problems that they can’t seem to resolve through normal channels. In some circumstances, the advocate office can force the IRS to give you relief.

Put Your $2,500 Expensing in Place Now ($5,000 with AFS)

If you have not done so before, make sure to put your safe harbor de minimis expensing election in place now. The new de minimis rules make your tax record keeping easier. With this safe harbor expensing, unlike Section 179 expensing, you don’t need to track the assets and keep them in a depreciation schedule.

Unpaid Payroll Taxes? Four Ways to Defeat the Trust Fund Penalty

Business owners and employees who do not pay their payroll taxes can find themselves personally liable for the trust fund portion of those taxes. This is true even if the business operates as a separate legal entity such as a corporation. If you are a business owner or employee in trouble with the IRS over unpaid payroll taxes, you need to consider strategies you can use to stop the IRS from assessing the trust fund penalties against you.

Comments from Readers on Last Month’s Tax Cheat Article


IRS Pays Whistleblowers for Successful Audits of Tax Cheats

If you report a tax cheat to the IRS, you may receive a portion of any money recovered following an audit. For example, the IRS paid $104 million to a citizen who revealed that his Swiss bank employer was helping clients evade U.S. taxes. If you feel it is your civic duty to report a tax cheat, the IRS would be glad to hear from you and reward you for initiating a successful investigation.

Q&A: Proof for the IRS That No W-2 Is Needed for the 105 Plan


Unfiled Tax Returns? Back Taxes? IRS Penalties? Do This!

Act Fast: Install New Audit-Proof $2,500 Expensing ($5,000 with AFS)

2015 Last-Minute Year-End General Business Deductions

This article takes your daily activity and identifies five easy year-end tax-planning strategies. Here are two examples from the article: prepaying your expenses under the IRS safe harbor and simply not billing customers and patients until 2016. These two strategies are certainly easy, as are the other three strategies in this article.

Facing IRS Penalties? Avoid Them with IRS Mercy; Here’s How

As a small business owner, you have good odds of someday facing a penalty for late filing and/or late payment of your or your corporation’s taxes. It’s likely you will think that you have to pay the penalties. But as you’ll learn here, when you know the rules of the road, you can travel the IRS mercy path and have those penalties forgiven.

Danger with Business Credit Card

You can make your tax life easier with a business credit card—but only if you use that business credit card correctly for tax purposes. For example, charging an expense to a credit card does not make it tax deductible. You need more proof. And you could create a type of double jeopardy if you operate your business as a corporation.

Q&A: I Won My Home-Office Deduction


Five Ways You Can Fight the IRS When Your Tax Debt Is Too Big to Pay

5 Smart and Legal Year-End Tax Benefits Available to Every Small Business

This article gives you easy year-end tax planning strategies for your everyday business. For example, prepaying your expenses under the IRS safe harbor and simply not billing customers and patients until 2015. These two strategies are certainly easy, as are the other three strategies in this article.

Crooked Tax Preparer Creates Big Trouble for Client

In this precedent-setting case, the Tax Court had to decide for the first time whether a tax preparer’s fraud extends the statute of limitations for IRS audit of the client return when there is no charge of fraud against the client. If the court rules against the client, then by precedent a tax preparer’s fraud extends the client’s allowable audit period from three years to forever.

How the IRS Lost $55,000 in This IRS Rental Properties Audit

The thought of an IRS audit is a worry, no question. But it’s worse when the IRS wants a lot of your money. And it’s even worse yet when the IRS wants your money because it interprets the law incorrectly and at the time you see the IRS adjustment, you have no idea whether the IRS is right or wrong.

IRS Asserts Fraud and Crushes Failed Mileage Log

You need basic books and records to avoid trouble with the IRS. If you have inadequate books and records and also make a large cash deposit in the bank, you might visit with the IRS every two weeks for about a year as the taxpayers in this case did. That’s a lot of unpleasant face time with an IRS agent.

Tricks to Deducting Meals with Your Spouse

Would you like to deduct business meals with your spouse? What would the IRS think about that? If the IRS said that the meals were not deductible, what would the courts say? You would think there are hundreds of rulings and court cases that explain this. Not so. There is one tax rule that mostly assures the deduction, but it requires an addition. Spend a few minutes learning how tax law treats your spouse when it comes to business meals.

Don’t Get Fooled by the Deductions Affidavit Myth

Lost records are not a death warrant when it comes to audits. But if your tax advisor tells you that you can replace your missing records with an affidavit, you need to change tax advisors. This type of affidavit is a bad idea. It will not help you. Find out what you should do instead.

Statute of Limitations for Tax Records

Do you know for what period of time you have to keep your tax records? You may have heard three years, four years, six years, and seven years. All of these can be correct, but also 17 years can be correct with a depreciable building that you sold in year 14. Because you need to keep the records for the required periods, you need to know what those required periods are.

Find the Winning Tax Law for Your IRS Audit

If you are suffering or about to suffer an IRS audit, you should know how your tax positions stack up against the IRS examiners’ positions. In most cases, you are discussing the facts, not the law, and you prove your facts with receipts, canceled checks, and logbooks. Once you get into the law, you need to know the rules that trump other rules. This article explains how you use the laws, rulings, and other IRS documents to prove the legal side of your case in an audit. And should your case advance beyond the IRS audit to the courts, this article helps you understand what the courts are looking for.

Lost Tax Records Destroy Both Your Time and Your Tax Deductions

Tax law grants relief, if you want to call it that, when you lose your tax records through no fault of your own. For example, say a flood, theft, hurricane, or earthquake caused the loss of your tax records. Your relief is the right to substantiate your deductions using a reasonable reconstruction of those records. Yikes, how long will that take?

Don’t Let Your Tax-Deductible Receipts Fade and Disappear

Learn how today’s restaurant and other receipts printed on thermal paper can create big trouble for your tax deductions. Over time, the images on thermal paper can totally disappear. And of those that have not yet totally disappeared, you have many that you can’t read. This means you need to create a plan that includes scanning or photocopying thermal receipts.

IRS Makes Income Limit Mistake on the Home-Office Deduction

What happens if the IRS makes a mistake in its publication or instructions? Is this your problem, or what? And how would you know if the IRS made a mistake? This article explains how the IRS made a mistake in its publication and in its instructions on the gross-income limit that applies when you want to claim the home-office deduction and have more than one place of business.

Fatal Error Makes Management Service Firm Fail as a Tax Strategy

Would you like to find more tax deductions for your business? This taxpayer created an ESOP as one way to gain more tax benefits from his business. He also created a management services corporation to provide services for his existing corporation. But he made one common and most tragic error. He just did not do the work.

Myth: Home-Office Tax Deduction Is a Red Flag for IRS Audit

Don’t claim that home-office tax deduction! It’s a red flag. Whoa! What’s a red flag and who says so? This article debunks the red flag for the home-office deduction.

Protect Your Tax Deductions for Business Entertainment Meals

Lawmakers reduced your deduction for legitimate business entertainment meals from 100 to 80 percent in 1986 and then from 80 to 50 percent in 1993. That might be good news. It could protect you from the dreaded Sutter rule, where you could lose all your entertainment meal deductions if you didn’t spend more, or differently, than you spend on yourself. Yes, tax laws can be strange.

How Mortgage Brokers Can Beat the AMT Caused by the FHA and IRS

The Federal Housing Authority (FHA) guarantees loans so that lenders can make mortgage loans with lower down payments, lower closing costs, and easier credit qualifications. When the mortgage crisis hit, the FHA changed the rules for mortgage companies that had independent contractors brokering FHA mortgages. The change allowed only W-2 employees to sell FHA loans, and thus many mortgage companies converted their brokers from independent contractors to W-2 employees. For many, this new W-2 status produces a totally unfair tax result that can be overcome with knowledge.

Do You Make This Big Mistake with Your Independent Contractors?

If you have workers who are paid on a 1099 as independent contractors, you need to avoid one fatal mistake. When you make this fatal mistake, you subject your worker employment classification to either the tax court’s common-law seven-factor test or the IRS’s 20-factor common-law test. Both of these tests are hard on the employer and often result in harsh reclassification of the 1099 independent contractors to W-2 employee status.


IRS Agent Denies Mortgage Interest on Home-Office Deduction

Tax law limits the home mortgage interest deduction to a maximum mortgage balance of $1.1 million. But what happens when you have an office in your home for which you claim tax deductions and also have a mortgage in excess of $1.1 million? In this article, the IRS agent incorrectly disallowed some home-office mortgage interest, and the tax professional had difficulty finding the tax law that would overcome the disallowance.

Tax Preparation Firm Charges Illegal Commissions

One of our subscribers encountered a tax preparation firm that charges a commission for amending past returns. Our subscriber asked this question: “Is such a commission legal?”

Tax Deduction for Classic Car Used in Business

How does the tax law treat the classic car when you use it for business? Can you deduct it just as you would any car you use in business? Learn how some tax law changes enabled the classic car as a business asset and why that can work to your advantage.

How Would Your Mileage Log Stand Up to an IRS Audit?

Your mileage log may not be an estimate of mileage. Further, you need a mileage log that proves mileage. With a weak, suspicious, or error-filled mileage log, by law, neither the IRS nor the courts may give you any vehicle deductions—and we mean none, not a penny.

IRS Audit Defense Insurance Fails Totally

Doing your taxes yourself using tax preparation software is dangerous business. You might realize the danger up front and decide that you need some type of audit defense or representation insurance in case of an IRS audit. And then, once the audit commences and you engage your audit defense team, find yourself in the soup like the couple in this article.

Digitize Tax Receipts to Protect Yourself and Make Credit Card Statements and Checkbooks Complete

Protect yourself and your receipts by digitizing them. You will like the results. Digitized receipts make the IRS smile and, of course, that makes you smile too. Without digitization, some of your receipts will disappear.

New IRS Forgiveness Program for Improper 1099 Payments to W-2 Employees Is Not the Gift It Appears to Be

Is your worker an independent contractor or an employee? You want to get this right at the beginning. But if you improperly classified an employee as an independent contractor, the IRS has a tax penalty relief program for you. Should the IRS plan not have the best relief for you, consider the Section 530 employer protection plan.

Road Map to Section 105 Plan Deductions

The appeals court remanded the Shellito case back to the Tax Court along with its road map for establishing the Section 105 plan. In the right circumstances, the 105 medical plan creates tax deductions where none existed before, and its tax-free fringe benefits can operate as the sole remuneration to the employee-spouse.

What Is 1099 Income and Why Does the Definition Cause an Incorrect 1099 and a Possible IRS Audit?

Learn what is 1099 income and why that often causes an incorrect 1099, which in turn can lead to an IRS audit. Often, correcting an incorrect 1099 on Schedule C compounds the problem. In this article, you learn how to 1099 correctly and what is 1099 income. The definition of “what is 1099 income” may surprise you.

Tax Audit Tips on Entertainment for Lawyers and You Too

You learn valuable business and documentation strategies from IRS audit manuals. We spend time reading these. In this article, we reviewed the IRS audit manual on self-employed lawyers and carved out selected business and documentation strategies you can use to audit-proof your deductible business entertainment.

Tax Audit Tips for Travel, Entertainment, and Education

How do you lose deductions to the IRS in an audit? Worse, how do you compound that loss of deductions by taking your case to court? In this article, see how one proprietor managed to do both.

Tax Tips on Equipment Leases to C Corporation

Renting to your corporation can produce tax advantages. Even failing to collect the corporate rent, as the individual did in this court case, can produce tax advantages.

Tax Tips for Rental of Ski Cabin

The cabin at the ski hill could be a hotel, a residential rental property, or a personal residence. It depends on your personal use of the property; the length of rental periods; and documentation of your time, others’ time, expenses, and activities.

Tax Audits of Small-Business C Corporation Returns Increase by 34 Percent

The IRS is in the midst of its largest hiring initiative in years. Therefore, the increase in IRS audits seen during the last few years is expected to continue at an even greater rate.

Did S Corporation Low Salary to CPA Owner Doom Tax Strategy?

The CPA in this court case operated as an S corporation with a low salary. The low salary got the IRS’s attention. To salvage bigger things, the CPA had to take the IRS to court

Tax Audit Tips on Hiring Your Child

When the IRS invites you for a tax audit, the examiner does not know that you hired your children. This fact surfaces during the initial interview or survey process, and the IRS instructs its examiners to examine this hire closely. You avoid all the problems when you have the right records.

Tax Audit Tip When You Fail to Seek Expense Reimbursement

When you fail to seek reimbursement for an expense, you often have no write-off. However, there are exceptions to this general rule, as examined in this tax audit tip

Tax Tips Needed on Land and Self-Rental Passive Loss Traps

The tax strategy of renting property you own personally to your businesses needs your attention if you want tax benefits. Similarly, special recharacterization rules apply to rentals of land and also when land is a big part of the rental.

What Is the Unpardonable Sin in an IRS Audit?

Should you or your corporation be unlucky enough to face an IRS audit, there is one record that stands out as critical to your audit health. If you are missing this one record, the IRS audit can quickly expand to other areas of your tax return.

What is a 1099 Independent Contractor?

If you are thinking of hiring your workers as 1099 independent contractors, this article is for you. The article shows you how the rules work and helps you understand what you need to properly classify your workers as independent contractors.

Payroll Taxes Embezzled; Owner Has Big Tax Problem

Do you own a business that withholds taxes from employees? If so, you need 100 percent certainty that the withheld payroll tax monies are going to the IRS. You can achieve 100 percent certainty with the IRS EFTPS registration..

IRS Audit Can Include Physical Inspection of an Office in the Home

You can keep records that reduce the chances of an IRS physical inspection of your office in the home.

Taxpayers Win Loss Deduction on Charter Fishing Activity

To deduct a loss on a charter fishing activity, you must materially participate in the activity. When the activity is organized as an LLC, you have more choices for material participation than a limited partner.

IRS Audits Expanded to Six Years for Overstatement of Basis

If you understate your gross income by more than 25 percent, the IRS can adjust that return for six years, rather than the traditional three-year statutory period for audits. In this clarifying regulation, the IRS explains that an overstatement of basis counts as an understatement of gross income for the 25 percent test.

No Mileage Log on Business Truck Destroys $53,625 Section 179 Deduction

You need a mileage log on your business vehicle. With no mileage log, you can try the alternate-proof method, but the odds are better than 9 to 1 that you will lose. This article gives you a perfect mileage-log system free.

Proving Federal Tax Deductions with Credit Cards

Credit cards are valuable time-saving assets when used correctly by the business taxpayer. Incorrect use damages both your wallet and your time management.

IRS Uses UBS Swiss Bank Account to Nail California Man with Tax Fraud

Swiss UBS AG and other supposed tax havens and secret banks are divulging the names of tax cheats to the U.S. government.

IRS Refund Owed after IRS Audit

The woman in this audit learned how knowledge can turn what appears as a nightmare (an IRS audit) into a positive happening—meaning cash refunds for the year of the audit and subsequent years. As the old sayings goes, “knowledge is power.”

Federal Tax Deductions for Three Business Cars

This article empathically answers the “show me where it says that you can use three cars for business” question.

Court Rules Trusts Are Shams

The court made it clear that every taxpayer may properly use the tax law to reduce his or her tax burden, but the use of paper entities that fail the economic reality test does not work.

Prior Year’s Tax Return Not Filed

If you are looking for tax deduction trouble from the IRS, do this: Don’t file your tax return or at the very least, file it well after the filing deadline.

More 1099s, Audits, and Enforcement

Treasury Secretary Timothy Geithner told the Senate Finance Committee that more 1099 reporting and IRS audits provide the solution to the tax gap.

How Often Can the IRS Audit?

The IRS has a procedure in place where you can ask “not to be audited” this year for the same items for which you were audited last year.

Owner Loses Business Loss Deductions

Ownership and involvement in your business may not be sufficient if your business suffers an operating loss. To deduct a business loss, you must materially participate in the business.

Real Estate Agent Is a Real Estate Broker for Passive Loss Rules

A real estate rental is automatically in the passive bucket if you do not qualify as a real estate professional. In this court case, a real estate agent qualified her real estate agent work time as time spent in a real property trade or business. Thus, she qualified to deduct her real estate rental property losses.

Real Estate Agent Avoids Passive Losses

Two tax attorneys told our group that time spent as a real estate agent actually worked against you for the time test (more than 50 percent) to qualify as a real estate professional. The attorneys claimed that in audits the IRS is disallowing the unlimited loss to people who are full-time agents, treating their agent work time as non–real estate time and thus making it just about impossible to meet the 50 percent test.

Tips to Audit-Proof Your Records

The law gives you no choice but to keep the proper tax records on a timely basis. This is pretty easy when you know what to do. One easy rule to follow is to never commingle your activities in your bank accounts. Both the rule that requires a mileage log and the rule that requires a time log are more difficult, but absolutely essential to proving your deductions.

Tax Cheats Steal $58 Billion of Your Money

Over 1.6 million businesses collectively owe the IRS more than $58 billion. Who to blame: cheating government contractors, a lenient IRS, irresponsible lawmakers, dishonest businesses. What to do, and how to protect yourself against a dishonest payroll service.

Turbo Tax Error Corrected

When using tax preparation software, be alert to automatic calculations that could place improper amounts on your tax returns.

Examination of Documents at IRS Appeals Level

Be careful when appealing an IRS case to a higher level. Usually cases are for the technical merits of your issue or facts; seldom does it result in an expansion of the examination.

IRS Audit

One taxpayer is in big trouble: he owes $61,000 in overdue taxes. Why? Bad records. We give him recommendations on what to do, but he is not in good shape.

Good News for 105 Plans

In an ISP, the IRS asserted that the Section 105 medical reimbursement plan may not reimburse the employee-spouse for the cost of health insurance purchased in the employee-owner’s name. This court case held that this IRS position is wrong and that the owner may deduct the cost of medical insurance purchased in his name when that insurance is covered by the Section 105 medical reimbursement plan.

Audit Guide for Your Self-Employed Section 105 Plan

Answering “yes” to the 11 puts you on the road to audit-proof status for your Section 105 medical reimbursement plan.


No Mercy for You When 1031 Exchange Intermediary Goes Bankrupt

When you use an intermediary to complete a Section 1031 exchange, you sell one property and place the cash on deposit with the intermediary. If the intermediary goes bankrupt causing your exchange to fail the time test, you are on the hook for the taxes.

Tool Allowance Fails

New tax rules have pretty much killed the once-common tool and car allowances as expense reimbursement methods.


Rental Loss Not Deductible

Carolyn Federson lost all of her rental property loss deductions when the court rejected some of the details of her rental property time records and made its own estimate of the time she spent on her rentals.


IRS Levies IRA for Back Taxes

Anti-alienation provisions prevent ordinary creditors from levying pension payments. The IRS does not suffer these provisions.


Tax Guide to Gambling Income and Losses

Gambling requires good strategies not only in your gambling activity, but also for tax purposes. You need to report your gambling income and losses in your tax returns and keep tax records whether you win or lose, whether the gambling is legal or illegal, and whether the gambling is a tax defined business or hobby.


Jail Time for Tax Evasion

Terry Gerber was sentenced to two years and six months in federal prison for tax evasion.


Lack of Knowledge Costs Home-Office Deduction

The taxpayer in this case relied on his lawyer, but that lawyer did not know the home-office rules. Then, the judge misapplied outdated rules to his home-office deduction, costing this taxpayer $7,000.


When Deductible

Technically, cash basis taxpayers deduct checks when they are delivered and negotiable. For the most part, the courts and the IRS employ practical applications to make this rule easy for you.

Bad Mileage Log Kills Vehicle Deductions

Robert Walters’ auto deductions sank from $10,878 to $966 because of poor record keeping. Do the best thing you can do for yourself. Keep a good mileage log next to your appointments. This can be easy, and it will save your bacon if you get audited.

Missing 1099 Creates Trouble

Uriah Jones’ employer was late and didn’t send him his 1099 in time; he didn’t send it to the IRS, even late. Not surprisingly, he was audited. He then took that matter to court and lost. Always report your income, even when you don’t receive the 1099. It’s taxable, regardless of 1099 receipt.

IRS Audit

One taxpayer is audited, and told incorrect information by an IRS agent. We give her proof to support her position.

IRS Audit of Rental Properties

The ability to deduct rental property losses can alter investment returns by as much as 40%. In many cases, the ability to deduct the losses can make the sole difference in making a profit or incurring a loss on the rental.

Tax Guide for Vacation Rentals

If you own a condominium, cottage, cabin, lake or beach home, ski lodge, or similar property, tax law might consider your property a hotel. The purpose of this article is to alert you to the tax issues that surround a vacation-home hotel.

1099s Tell Story on Dentist

Steven Olmos thought he could slip past the IRS when he changed states. It is not very complicated: the IRS knows if you do not file taxes.

Court Rules Horse Activity Is Advertising Component of Design Business

Tracy Topping saved $251,462 in taxes when she proved that her horse activity was not a hobby, but a promotional tool for her business.

Previous Audit Does Not Bless Deductions

From a legal standpoint, income taxes are levied on an annual basis, so that each year represents a new liability and a separate cause of action. Under this principle, taxpayers do not establish entitlement to deductions in one year merely on the basis of allowance of similar deductions in a previous year.

Spreadsheets and Credit Card Receipts Not Close to Correct Evidence

The IRS has very specific rules regarding record-keeping for deductions. One husband-and-wife team lost over $31,000 because of bad records. Know the law!

Tax Law Shows No Mercy to Victim of Payroll Embezzlement

The IRS is not a forgiving entity. Even if a fraudulent payroll service is charged criminally, as in this case, you are still responsible for the taxes you owe. We give you a sound strategy to avoid payroll fraud.

Tax Guy Commits Fraud; Client Pays the Government

Vincent Allen hired a tax preparer to file his tax returns. The preparer was charged with fraud. Although the IRS did not bring the fraud charge against Allen, users of fraudulent preparers could easily be charged and convicted of fraud themselves.

Tax Quiz—IRS Audit

4% of Americans are audited each year. Do you know what two line-item expenses are most vulnerable to a Schedule C audit? Take our quiz and find out!

Jail Time for Not Filing Tax Returns

Anthony Lee was sentenced to seven months in prison and three months of home detention for failure to file his tax returns. He owed $76,853 in taxes and an extra fine of $10,000. Know the law!

Putting the IRS Audit Manual’s Home-Office Section to Work for You

The IRS puts out its audit manual every year. It not only contains information on how to audit, but also gives information on disallowing deductions. We dissected the audit manual and give you 11 audit-proofing tactics to ensure you get the deductions you deserve.

Why Incorporation Makes Your Home-Office Deduction Less Subject to an IRS Audit

You have probably read that the home office increases your chances of IRS audit. We’ve read that, too, but we don’t believe it. Regardless, there are a few things you can do to make your home-office audit-proof.

Your Chances of Audit Are Increasing

In March 2007, the IRS released its latest audit statistics. Your odds of avoiding an audit are getting worse.

Tax Preparer Loses Records, Taxpayer Pays the IRS

Dr. Rinker lost over $60,000 of deductions when her tax preparer lost her records. Don’t lose your tax records, and don’t give your original records to anyone, not even your tax preparer!

Filing Tax Return Late

Even if you do not owe any money, you move right to the front of the line for an IRS audit if you do not file your taxes on time. Always file a tax return, even if you cannot pay the tax.

You Lose When You Answer Late

Learn from one taxpayer’s mistake: if you hire a lawyer for tax court, hire a tax lawyer.

The Value of Documents When You’re Arguing with the IRS

IRS auditors do most of the audits. They are not accountants (IRS agents are accountants); they might be wrong about tax law. It’s your responsibility to know the law and use it to prove your point. This article tells you how to use court rulings and documents that enforce your rights in your tax-law partnership.

Build Proof That You Filed Your Tax Return

Answer this question: Could you prove that you filed last year’s tax return? Is your proof credible enough that it will stand the scrutiny of the IRS?

IRS Issues New Rules for Fixing Depreciation

Revenue procedure 2007-16 allows you to make a change in depreciation after you sell, trade, or abandon property. The new procedures make some prior procedures obsolete and make revisions easier.

IRS Releases Fees for 2007 Private Letter Rulings

Getting the IRS to give you an advance ruling on a transaction or deduction can be very worthwhile. It now costs money, but it might be worth getting the opinion you seek. If your ruling does not fit into the three major categories they list, your fees may vary. The highest fee is $50,000 for a pre-filing agreement.

Reasonable Mileage

The law contains no reasonableness test for mileage. There are very specific rules for recording mileage. We recommend that you keep a mileage log for three consecutive months to prove your business-mile percentage.

Poor Arguments Cause Demise of Home-Office Deduction

You need to know the rules to protect yourself not only from the IRS, but also from the courts. If you don’t take the proper position on your home-office deduction, neither the IRS nor the courts give consideration to the arguments you should have raised that would have won your deductions.

Actor Wesley Snipes Indicted for Tax Fraud

It matters not that you used a paid tax preparer to help you, you commit tax fraud and face jail time when you take illegal tax protestor positions on your tax returns.

How Jones Brought Himself to the Attention of the IRS

When you receive a 1099 or a W-2, you should file a tax return even if no return is required.

Records Lost in Fire

If your tax records are destroyed in a fire, the IRS allows you to reconstruct the records. Reconstruction takes a big effort. Protect your records so that you don’t have to reconstruct them.

Assignment of Personal Commissions to His Corporation Crushes Insurance Agent

Assigning your personal commissions to your corporation does not work. In this court case, this insurance agent had unfiled tax returns and unpaid taxes for the years he assigned his 1099 income to his corporation.

Court Crushes Slot Machine Winnings

Hobby gambling can trigger taxes when you have a zero income because the law makes your winnings reportable above-the-line and losses deductible below-the-line.

IRS Says Protect Your Tax Records—It’s Hurricane Time

Today’s computer and Internet technology give you a variety of new safeguards that you can use to protect your tax records. When thinking about your records, keep this one overriding rule in mind: no records, no deductions.

IRS Revokes Letter Ruling

It is highly unusual for the IRS to revoke a private letter ruling. You can protect yourself from a revocation by making a proposed transaction the subject matter for the ruling.

Any Personal Use Destroys the Business Rooms at a Bed and Breakfast

Tax benefits for the bed and breakfast require adherence to the transient, vacation home, and hotel rules. Under these rules, personal use can destroy deductions. Further, the length of transient stays determines the types of services you need to provide, if any, to qualify the bed and breakfast for tax-favored hotel benefits.

Woe to the Taxpayer with Bad Records

Bad records can cost you just about every tax deduction. You can testify as to your deductions, but without the records that turns out worthless. When it comes to your taxes, paper talks.

IRS Employs Bank Deposits Method to Tax Income

If you don’t have the tax records or if you are just not cooperative, you could enable the IRS to use the bank deposits method to determine your taxable income. This is a bad thing. When the IRS uses the bank deposits method to determine your tax liability, you generally pay a whole lot more tax.

Filing Returns for Past Years

Not filing your tax returns on time because you lost or misplaced your tax records is going to make your tax life miserable. The trouble is so bad that you need to consider an “offer in compromise.”

Winning the Combined Business- and Personal-Trip Deduction

This taxpayer won his deduction for going to the library located 36 miles away from his home and next to his parent’s home. The IRS lost its argument that the taxpayer should have used the library near his home rather than drive 36 miles to the library where he also could visit with his parents.

IRS Doubles Audits of Sole Proprietors and Independent Contractors

The IRS fulfilled its promise and audited twice as many Form 1040-Schedule C taxpayers and S corporation returns. Your odds of audit vary by both choice of entity and gross receipts in that entity.

100% Deductible Entertainment

Many sporting events qualify for a 100 percent entertainment deduction rather than the traditional 50 percent. This is true for both participants and spectators. To qualify for the 100 percent entertainment deduction, the net proceeds of the event must go to charity—as they do in a PGA Tour golf tournament.

Pyramid Scheme Costs Deductions

When you start a new business activity or you do a business activity on the side, you must establish a profit motive. One easy way to demonstrate the profit motive is to show the time you spend on the activity. This taxpayer had no proof of time worked, so he looked suspicious to the court.

How the Business Condo Escapes the Tough Tax Rules

The properly used business condo does not run up against the vacation-home, passive-loss, or entertainment-facility rules.

Big Price for Bad Records

Making a lot of money is no excuse for keeping bad records. Top off the bad records with failing to give adequate documentation to your CPA and you add to your misery index with negligence penalties. The taxpayer in this court case had to shell out about $5 million in taxes and over $1 million in penalties.

Bad Records Destroy Deductions

The law requires the taxpayer to maintain records sufficient to establish his income and deductions. In select circumstances, estimates provide a rational basis for deductions. With respect to vehicle, entertainment, meals, travel, and gifts; estimates are out and neither the court nor the IRS may grant your deductions without the prescribed records.

Pencil Okay for Calendar

Both the IRS and the courts have approved pencil as adequate for tax entries.

No Chance in Court

The taxpayer’s tax preparer told him to create an “Affidavit of Facts” to support his tax deductions. This was a useless exercise. This tax preparer, the one who recommended the useless affidavit, lost his enrolled agent status, and the time of this trial was forbidden by the United States government to prepare tax returns.

Home Mortgage Interest Deductions Denied

Interest paid on a life insurance loan to buy a home does not count as deductible mortgage interest.

Fake 1099 on Auto Purchase Creates Trouble

The auto dealer sent this customer a bogus 1099 because the customer refused to return to the dealership and redo the “no interest” loan to an interest bearing loan. The dealer made a mistake originally and then wanted the customer to help fix the problem—at the customer’s expense. The customer said, “No.” Later, when the bogus 1099 showing interest income from the no-interest loan showed up in this customer’s mailbox, the customer took this dealership problem to the IRS.

Victim Not Entitled to Embezzler’s Estimated Tax Payments

This taxpayer embezzled money from his employer, got caught, and died in jail. Before he died, the embezzler sent the embezzled money to the IRS as an estimated tax payment.

Van Donation Valued at Sale Price, Not Blue Book or Appraised Value

The IRS told lawmakers that a number of people were cheating on vehicle donations and that some changes in the rules could put a quick stop to that. This court case explains why lawmakers went along with the IRS and enacted the changes that are in effect today.

Are Corporate Advances to the Owner Loans or Dividends?

To make sure that the IRS will treat the C corporation’s advances to the employee-owner as tax-favored loans rather than tax-penalized dividends, make sure you can answer “yes” to the seven questions.

Shaky Proof in Gambling Income and Loss Case

When you win more than $1,200 at the slots, the casino must report your winnings to the IRS. In this court case, the taxpayers mistakenly reported gambling income of $21,100 and the IRS received 1099s showing income of $44,464. This difference in reported income did not look good in court. But these taxpayers fared far better in court than anyone in their right mind could expect because they had proof that this court liked.

Home Office for Corporation

The IRS audit manual states: “If you rent all or part of your residence to your employer and use the rented portion when performing services for the employer, you cannot deduct home-office expenses attributable to the rental.” Thus, forget the rental to the corporation and use the corporate-reimbursement-to-the-employee strategy for maximum benefits.

Both CPA and IRS Wrong on Audit of Home Office

This taxpayer had his CPA with him during the IRS audit of his tax return. When the home-office deduction came up, the CPA agreed with the IRS that this taxpayer did not qualify for the home-office deduction under Soliman—a Supreme Court case that lawmakers made obsolete in 1999 with enactment of a new law. Thank goodness this taxpayer was a subscriber to this newsletter and, because of that subscription, knew the rules on the home office.

Auditor Gives 80%

During an audit, the IRS can pretty much allow or disallow whatever it wants. In this first stage of the audit process, the burden of proof is on you.

$75 Rule on Vehicles

Under tax law, your vehicle is considered “listed property.” The IRS has a regulation that applies the $75 receipt rule to listed property.