Realtors Take Note:
Schedule C Filers
Are the Most Audited Entity by the IRS
Denied trade or business deductions tops the list of disputed items taxpayers have with the IRS per the IRS National Taxpayer Advocate 2019 Annual Report to Congress.
Related to the denial of business deductions for self-employed individuals, gross income disputes, including unreported business gross receipts, comes in at #4.
Generally, these issues arise through an IRS audit examination. The IRS generally prevails in these cases. Why? There are numerous reasons.
Self-representation is "Advantage to the IRS". Taxpayers who respresent themselves are unfamiliar with their taxpayer rights and the administrative remedies available to them. The role of an IRS auditor is to assess taxes owed, not to act in the best interests of the taxpayer. An experienced tax professional knows what documentation and support the IRS is willing (or has) to accept, is familiar with the Cohan rule, and knows how to negotiate with the IRS. The tax professional acts as the advocate for the taxpayer.
Lack of documentation to prove the expense claimed is another reason the IRS often prevails during an audit exam.
Ordinary and necessary expense requirement. Where documentation does exist, the IRS may deny the deduction arguing that the expenditure was not an ordinary and necessary expense.
Expense versus capitalized expenditure. The IRS may also find that the expenditure should not be expensed, but capitalized.
Tax Planning Tip #1
If a CP-2000 Notice is received from the IRS and the taxpayer agrees with the IRS notice, check the appropriate box on the IRS notice and remit the payment due.
Tax Planning Tip #2
If the IRS is conducting a field or office audit, immediately engage an experienced tax professional before meeting with the IRS auditor. Too many taxpayers represent themselves and only when they receive their statutory notice of deficiency and rights to appeal, they then contact a tax representative. Sometimes this tax rep call for help is made after the 30-day period for requesting a hearing has expired. Case in point: Taxpayer called us who owed the IRS over $197,000 and requested that we represent her at her appeals hearing to be held two days later. When we asked her what were the issues and what support she had, she said that she had no support and just wanted someone to represent her at the appeals conference. We politely declined her request. After sharing what options were available to her, we suggested she contact the Taxpayer Advocate Office for assistance.
Tax Planning Tip #3
Some taxpayers believe that if they do not prevail with the auditor, they will simply go to Tax Court to win the case. Tax professionals will tell you that you best chance of success is at the audit level. IRS auditors are under management pressure to close out their audit cases. If the auditor will not agree to a proposed fair settlement, perhaps their manager will. One needs to know how to work the IRS system and exhaust all administrative appeals rights.
For real estate professionals with IRS tax debt issues or tax planning issues, feel free to contact me at (610) 594-2601 or by email at info@keysolutions.us.
Bryan Haarlander, an Enrolled Agent and a Certified Tax Resolution Specialist, is an affiliate member of the Suburban West Realtors® Association, a member of the American Society of Tax Problem Solvers (ASTPS), PA Society of Tax & Accounting Professionals (PSTAP), the National Society of Accountants (NSA) and the National Association of Tax Professionals (NATP). He is the author of “How to Resolve Your IRS Tax Debt Problems” as well as a book on how to start your own business. He has been practicing in Exton for 18 years. His blogs http://www.taxexpertblog.com and http://www.stopmytaxproblems.com discuss pertinent tax and business issues.
By visiting our website you can learn about the 5 Secrets the IRS Doesn’t Share and order a FREE SPECIAL REPORT: Should You Represent Yourself or Hire a Tax Professional.
Keystone Financial Solutions, Inc. specializes in providing innovative tax planning, tax preparation, and solving IRS tax debt problems. The company’s web site is https://www.keysolutions.us and its telephone number is (610) 594-2601.
If you have any IRS tax debt issues or tax planning issues, feel free to contact me at (610) 594-2601 or by email at info@keysolutions.us.
Disclaimer: Content in this blog is for educational purposes only and should not be considered as the rendering of tax, legal or investment advice. The publisher of this blog makes no representations as to the accuracy or completeness of any information herein, will not be liable for any errors or omissions, and shall not assume liability for any losses, injuries, or damages from the display or use of this information. Should you wish to engage our firm to represent you, please call us at (610) 594-2601.
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