Why does IRS grill the little guys?

[andy158]

Actually the audit is tomorrow. The IRS office rescheduled it twice. I would have loved to hire a CPA or tax lawyer, but one year running in this bk13 and the funds are real thin. Wife didn't have a milage log, but I made a spread sheet using her pay reports. I have one half of a banker's box full of reciepts, credit card statements and work sheets for every pay stub. I will post a reply after tomorrow.

[epiphany]

I didn't keep a mileage log either. Like you, I did create a spreadsheet that could be backed up receipts that I had. But she never asked me about my mileage.

Looking forward to hearing it went well...good luck!

ep

[andy158]

Update

First meeting with IRS went for nearly 4 hours. Auditor was decent and an actual human being and actually commented on how organized I was.

Have to provide for second meeting:

1. Three missing bank statements out of the 105 she examined. (Two personal accounts and one buisness account)

2. More details on car expenses. (Have to provide actual dates and cities. Odometer reading is not acceptable for the type of mileage claimed because of "commuter" miles. See below.)

3. More details on travel expenses. (Have to organize into a spreadsheet)

4. Have to provide proof of mileage on previous year's schedule C. (May get dinged on these as well)

5. Everything else she examined was acceptable.

Things that at I learned:

* I was so worried about the home office deduction and found out it was only worth a $327 total deduction. Needless to say I will not claim this anymore. Also, you can not take the home office deduction if you show a buisness loss.

**Any deduction for clothing has to be strictly buisness. Includes lab coats, uniforms and job specific safety clothing, not items you can wear on the street. Got dinged for that one too. About $400.

***Mileage deductions. This was the killer. Told that a log book is now a necessity for any future claims. Let us slide on that one if we provide documentation of each trip. Mileage that can be driven in a reasonable time to and from buisness locations (about 60 mi one way) is considered "commuting miles" and can not be deducted. More than half of what we claimed was "commuter miles". Wife did a lot of "same day/one day" travel for alot of her events and is now "denied" those miles. All to the tune of about 18k miles or $9000 in deductions. OUCH... this one hurt.

Looking at about an $800 - $1k tax bill depending on the leniency. Nice addition of insult to injury being in bk13.

[epiphany]

Thanks for the update. Sorry you are having to pay. And I know what a hassle this is, especially while going through bankruptcy.

I hope they are lenient with you. And I hope you at least feel better that it's over (well not over, but at least you know what you're in for).

Good luck!

ep

[BCA2009]

I guess the laws have changed on the "commuter " rules, But when I was doing taxes, the basic rule was: If you have an office, or principal location of work, miles to that location were commuter miles, but driving to any other location, beyond that in a day were deductible, so if your office was 30 miles away ant you went to a client that day rather then going to the office and the client was 20 miles away, we didn't deduct that. But over the 30 we did. If you went to the office first, then to the client, then back to the office it was deductible. Any out of town travel for meetings or special events was deductible. This is for personal deductions. If you were a business you could reimburse employees and take the deduction for sending them to the post office a mile away. i think that is still the case.

It may be easier to just roll over, but I would consider digging into the milage thing a little deeper.

[BCA2009]

I would look onto Revenue Ruling 99.97

Summary:

COMMUTING EXPENSES ARE DEDUCTIBLE WHEN ...

A taxpayer's residence qualifies as a principal place of business

Traveling to a temporary location outside the metropolitan area

Traveling to a temporary location inside the metropolitan area, if the taxpayer has a regular location away fiom the taxpayer's residence.

http://www.unclefed.com/ForTaxProfs/irs-drop/1999/rr-99-7.pdf

[justbroke]

Yes, I would certainly relook at the commuter classification. My home is my primary work location. When I go into a company office miles away from my home, that's not a commute and my company pays mileage!

[BrokeOR]

We have been sent notices by the IRS for three out of the past 4 tax years (prior to 2009), all of them claiming huge underreportings and omissions by us. Not one of their accusations has been valid; we have won all three with only a letter contesting their assertions, pointing out what is valid and resubmitting all documents. None has risen to the occasion of an audit, but the last one (for 2008) demanded an additional $28,000 in taxes and penalties on underreported income of $88,130. After confirming that I didn't have an extra $88,000 under the matress, I noticed that one of our 1099s listed a gross of $881.30. Obviously, some dipshit at the IRS made a data entry mistake.

My question, though, is this: Why is it that the IRS is looking at the same taxpayer year after year? All returns are prepared by a CPA, two out of the three years income was derived only from salary and the third year a small business that was not big income and no home office deductions or any of the other "flags". Could it be because, the years with salary, my husband was a VP and officer for a public company?

We feel harrassed, but have fought and won at the initial level because the IRS had nothing and either manufactures things that they think people won't fight because of fear OR has the most incompetent employees on Earth.

[andy158]

Thanks BCA2009! I am printing the info from the link you gave me as I type. I will certainly give this to the auditor when she returns Aug 2 with the portions highlighted that are specific to our situation.

I questioned the "commuter" argument when she was here. I said that my wife drives to these "commuter" sites with a vehicle fully loaded with equipment, pays for parking and works for sometimes up to 12 hrs and can not deduct the mileage to and from the work site? Her response was that she did not have a "buisness" license and therefore could not deduct same day travel mileage. It was the same as commuting to a full time place of employment form your residence. I strongly disagree with that.

I am allowed to claim the over night trips and any other stops from the first "commuter" destination. Sounds like a bunch of legaleese to zap a big portion of the mileage I claimed.

[BCA2009]

Andy, I think you have a very good position, That ruling doesn't say anything about business license. There are no "Federal Business Licenses", so I don't see how the IRS can use that as a justification to deny the expense.

Agents are not paid on a commission, so other than ego she shouldn't give you too much trouble if you lay it out for her.

I would try and challenge it but if they won't back down, the easiest thing may be to suck it up. Don't get me wrong, I would fight it as much as I could on my own. But you couldn't get a CPA or Tax attorney to touch it without being prepared to spend $500 just to look at it and write one letter. If it went further than that it would cost way more to fight it than just paying the extra tax.

Good luck and hopefully they will back down