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It was an extra special Fathers' day for me. I had the honor of baptizing my youngest grandson in this morning's service.

I am certainly hoping that your statement is rife with sarcasm.... The IRS has been doing EXACTLY what you described for at least the past 3 years. True documentable story: At the firm, we specialize in home based businesses. We do returns from all 50 states. 2012 tax year, new client from Kansas City, MO. She contacted us because of our connection to Mary Kay consultants, etc. Late February, I took her phone call and she was asking basic questions about her first year in Mary Kay. As part of the conversation, I asked what her daytime job was. "I work for the IRS." My heart quickened a bit then settled down. Me: "Really! How long have you worked for the IRS?" Her: "Since this past October." Me: "What do you do there?" Her: "Currently I am answering phone calls in the Where's My Refund department. It is pretty straight forward to get people answers." Me: "What did you do before working for the IRS?" Her: "I have a background as a paralegal. In addition, with a few more weeks of training, I will move up to processing 1040X returns. I should be doing that by June." Me: "That is great that they let you move up so quickly." (Inside I wanted to scream!!!) Her: "Yes moving up seems easy. How difficult can processing amended returns be?" Me: "Well it sounds like you have a good career path working. Are there any other questions I can answer for you?" Her: "Nope. You have answered all my questions." Me "Thank you for calling. If you have any other questions, please feel free to call back." This story is 100% factual by me, first person live. I can only hope to the great tax gods in the sky that none of my amended returns end up in her hands.

Sorry, but that is not how I read the situation. The client wants to avoid the 'lawful' tax owed on the benefit he got from the bank's absorbing his loss. Jack was expressing his opinion on someone who got into a bind based on his own choices, got a big tax break already, legally, and still is not willing to accept even the much reduced obligation that is legally owed. Seems to me that 'being poor' does not excuse him from his personal responsibility to follow the law.

Never have I seen a response from correspondence sent 5 days prior be answered by IRS. As their letters are usually "post dated", their "reply" was probably written around the end of May, therefore, I'm willing to bet my life that the second piece of correspondence was sent and written as if the taxpayer had never responded. Did you actually see the first piece of correspondence from IRS? I'm wondering if it was a correspondence audit or a CP2000 Notice. IF it was a CP2000 Notice, the latest "re-designed" ones are horrible and often contridict themselves even on the same page. Don't knock your head against a brick wall until you're able to talk with someone at IRS to find out what's really going on. 6 to 8 weeks has been the average lately for IRS responding to taxpayer's answers to correspondence audits.

Are you saying that anything is OK as long as there is not a law against it? That "lawful behavior" EQUALS "ethical behavior"? On that I can not agree. Personally, I can think of countless examples of individuals breaking the law and being very moral or ethical. MLK comes to mind. For me, a useful conceptualization of ethics has to differentiate between legal and ethical.

Yes the owner of both entities are the same. So it sounds like the return needs amending. Thanks Judy

The conventional wisdom used to be that a college degree, almost any college degree, qualified you for a new career. You might not change jobs, but you would be qualified. Court cases are shifting the conventional wisdom, at least in certain federal districts. Your client has already shown that conventional wisdom at work by proving he was hired for a new job by gaining specific skills in his MBA program and presenting a letter from his new employer stating such to the auditor. You need to present your client's facts in such a way that they fit the regulations and the cases that have won deductions for MBAs in tax court. Your client has no tax trail or paper trail of employment in this country, except for a new job following an MBA program, with a time gap and a geographical gap in his employment history. You need to work up a timeline showing his skills needed in his former job and his current and how those skills were improved by specific courses. If you don't want to think of it as educating yourself, think of it as being able to educate your client so he doesn't say anything that hurts his case, or think of it as being able to educate your auditor or supervisor by citing cases. Someone that specializes in representation has probably improved their own skill set to deal specifically with auditors. You might want to search for representation for your client. At least, stop your client from communicating directly with the auditor and have everything go through you for review first.