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I am an EA, and I would refer a client to another professional if the area for representation was not one that I am familiar with. For example, I have never done a 1040NR and I don't have much experience with tax treaties. So I would probably have handed a case like this to an EA in our area that used to work for the IRS in their international division if he was willing to take it. I don't mind doing some research to prepare an unfamiliar form or even return, but in a representation situation where I am unfamiliar with the rules of engagement, I feel like the client is entitled to more competent representation. I have learned a lot reading this thread, but I still would not feel competent to take over representation on a case like this. I will be the first to admit that I don't know everything there is to know about tax law. IMO, there is just too much of it to know it all. And not enough hours in the day to do the research required for an area I am totally unfamiliar with.

http://www.accountingtoday.com/news/bill-would-let-eas-promote-themselves-everywhere-67110-1.html?ET=webcpa:e7252:61496a:&st=email Sen. Rob Portman, R-Ohio, and Rep. Charles Boustany, R-La., have introduced legislation aimed at allowing Enrolled Agents to present themselves as such and tout their credential wherever they practice. This will “ensure that individuals, families, and businesses across the country are able to identify and access EAs,” the co-sponsors said in a statement. The representatives said that their Enrolled Agents Credential Act or H.R. 2313 is aimed at those states that “prohibit Enrolled Agents from using their credential when representing taxpayers or advertising for potential clients. This bill would clarify that Enrolled Agents may use and display their credential when advertising their services and representing their clients.” In statements, both Portman and Boustany stressed that access to EAs -- who are certified by the U.S. Department of Treasury and have unlimited rights to represent taxpayers before the IRS -- is increasingly essential as taxpayers struggle to comply with an “antiquated” and “outdated and complex” Tax Code. “This bill is helpful because in the last year or so, the federal government has begun to promote the use of licensed tax return preparers like Enrolled Agents, CPAs and lawyers, and it’s important that Enrolled Agents be able to use their credential to distinguish themselves from unlicensed preparers,” added David Rothstein, project director at Policy Matters Ohio, in a statement on Boustany’s Web site. “Congress and the IRS should do everything they can to encourage the professionalization of the tax industry,” added Michael Fioritto, president of the Ohio State Society of EAs, in the same statement. “By interfering with Enrolled Agents’ ability to advertise and brand themselves, a few states are hurting not only the Enrolled Agent profession but the consumers in those states who might utilize their services.” The National Association of Enrolled Agents has long supported the “bipartisan” bill, and pointed out in an open letter to all EAs that Rep. Xavier Becerra, D-Calif., “has agreed to jump on board with Dr. Boustany and co-sponsor H.R. 2313. In addition, Representatives Tim Bishop, D-N.Y., and Delegate Eleanor Holmes Norton, D-D.C., are also original co-sponsors of H.R. 2313.” “EAs in several states have been significantly limited in the use of their federal credential. The codification would level the playing field for Enrolled Agents in those states,” said NAEA president Betsey Buckingham. “EAs, who have an unlimited right to prepare tax returns and to represent taxpayers in advocacy issues with IRS, believe it isn’t unreasonable to use their federally given designation,” added Robert Kerr, NAEA senior director of government relations. “The proposed legislation, which NAEA has been promoting for years, helps Enrolled Agents market themselves and to distinguish themselves from the legion of untested and unlicensed fly-by-night preparers.” Unlike attorneys and CPAs, who are state-licensed and may or may not choose to specialize in taxes, all EAs specialize in taxation. There are some 47,000 EAs in the U.S. “The legislation has been a priority of NAEA leadership, which has charged the GR team with doing everything it can to garner Congressional interest,” Buckingham wrote in her letter. She called the bill “simple -- a one-pager and at no cost to taxpayers.” She noted too that the organization has brought members to Washington to advocate for the bill, and her letter added tips on what EAs can do to voice their support to Congress.

I didn't say "the top marketing person". I said "a sharp marketing person." Any suit can give interviews and issue apologies. We are seeing examples of that in another context, aren't we?

Cathy, at first I thought Joan's post was a little harsh too (although I agreed with every word). I think we are all getting frustrated with MsTabby because she hasn't absorbed a single word of all the well-meaning advice that so many posters have taken the time and trouble to offer. She titled this thread "seriously incompetent auditor" and has failed to see any light that we have all tried to shed that just maybe the auditor is right. Ms Tabby is coming across as a know-it-all who didn't really come here for advice but for sympathy for her position. She has fought all the good advice that was given her because it didn't agree with her preconceived notion that the auditor is wrong. If any good has come of this, it is that a number of other posters said they really learned a lot about the audit process, what it takes to prove a case, what to do and what not to do. Everyone who hasn't already done so should read Circular 230 (and even those who have, as a refresher), and pay attention in those mandatory annual ethics courses. Ms Tabby especially needs to do this. To clarify for the OP, the responses of many very knowledgeable posters to the issues you raised have led to the following conclusions: 1. An MBA QUALIFIES the taxpayer for a new position. The IRS and many courts have taken the position that the cost is therefore not deductible. It does not matter that he does not go and get a new position, just that he is qualified for one. 2. A scholarship that CAN be used for living expenses, educational materials, etc. is taxable income, regardless if it was actually used for tuition. (Even the pubs say this.) Was this fact perhaps in the 19 pages that were faxed to the auditor and unknown to the OP? 3. In an audit (unless a criminal case), the burden of proof is generally on the taxpayer. His or her representative must gather that proof. Dismissing the auditor as incompetent and relying on nothing but pubs (and not even reading them carefully enough to realize that they say "qualified" for a new position instead of "taking" a new position) avoids gathering the substantiation the taxpayer needs and hands the auditor an easy win. 4. Representation is a serious obligation. Know when you are over your head and hand the case to someone more qualified. This is not an admission that you are incapable. CPAs and EAs routinely do this when they sniff that something a client has done verges on criminal because they don't want to have to testify against their client (which they will have to, whereas communications with an attorney enjoy attorney-client privileges so they send the client there). 4. Don't ask rhetorical questions on a serious message board such as this one. Many people tried to help before they realized that the OP was convinced she was right and didn't really want any help. Doing so leads to the type of crtiticism voiced by Joan (and some will say me as well).

FYI _ Here is a link to a website that explains related party transactions, what/who is a related party very well. This site helped me understand the relationship between a partnership and corp that has the same owners. http://www.law.cornell.edu/uscode/text/26/267

>>What happens to the remaining depreciation on "leaseholds" mostly for building repairs.<< Presumably "buidling repairs" have already been deducted! If they were actually leasehold improvements depreciation was allowed/allowable for the tenant. Normally when a lease terminates remaining depreciation can be taken as a loss, but since in the original post it is the same owner, I believe the loss must be suspended for the S-corp and subsequently reduce gain on the building sale itself. "Eventually will probably dissolve" doesn't sound like you can use the rules for complete liquidation.

>>what/who is a related party<< Thanks for posting this. With business entities I can never remember what is and isn't related. But all of us should memorize paragraph c4, defining "family member." Note who is NOT listed. In-laws, step-children, cousins, nieces.... lots of close relations! This applies to below-market rent, Section 1031, family loans, capital and passive activity losses, and many other matters on the 1040. But not everything. For example, much broader definitions for dependents and for transferring education plans. Also note that this is a TAX rule, not an accounting rule. GAAP generally ignores related party issues, requiring basis and other adjustments when books have to be reconciled to the tax return on Schedule M-1.

The owner of the building (the single-owner LLC) will report the sale of the building without taking into account those improvements made by the S corp tenant. As long as the S corp continues to occupy the building, the leasehold improvements should stay on the fixed asset schedule. Those improvements will be written off as abandonements when the S corp vacates the building as an ordinary loss. It will be part of the flow-through on the K-1.

From time-to-time people will bring me unusual situations or downright messes and when I look at it I immediately know how to fix it or where to get good, solid answers. It is rewarding to be able to help move a worried, fearful client into a state of calm and relaxation. I've also been handed situations which were such a mess or so far outside my area of experience that I couldn't get a good handle on the situation, or I found that I needed to do one-time research that I'd never use again. Not a good use of my time or my client's funds. So I learned over the years that it's equally rewarding to simply tell the client this is outside my area of expertise or experience, and recommend that they find someone else. As far as I'm concerned, BOTH situations gave me a sense of control and assurance that I'm doing what is in my client's best interest. If the potential client thought less of me because I admitted my limitations, that's his problem, not mine. (Incidentally, I learned this in part from my mechanic. I had a problem with my car one time that he just could not resolve. He finally suggested that I take it to a dealer, who had fancier testing equipment and more experience with my year and model car. They found a wierd anomaly unique to that vehicle and fixed it at probably twice what my mechanic would have charged, but all 3 of us benefitted in the long run. And I remain a loyal customer of my mechanic going on 20 years because I respect his judgement. )

Perhaps a solution would be to just have a separate forum devoted to all other vendors, and unless and until it became apparent that some particular vendor was dominating that forum leave it like that. I don't know how difficult it is to set up a separate forum, and I certainly don't want to cause Eric unnecessary extra work. I think we all appreciate all that he already does.

You are so far over your head you don't even know you're drowning. Your client needs knowledgable and qualified representation, and you aren't even attempting to educate yourself on the issues you are clueless about. Have you even reviewed the 19 pages of documents that were sent by your client? Have you read the tax treaty (if there is one with Columbia) to see if the dividends are taxable? It's a de minimus amount, but providing proof for your position on them could go a way towards convincing the auditor that you are competent, for which you'll need all the help you can get, because you certainly are not convincing me. Case law, facts & circumstances are what will prove or disprove the deduction.

>>If the auditor needs more.........<< The auditor doesn't need any more. According to you, "The letter he got says if he disagrees he should have a conference with a local appeals officer.." That sounds to me like the case is already closed. Your employer letter could backfire because it only says the education is not needed for the current job. It does not address the key question, whether an MBA would qualify him for a different job. Your tuition statement could backfire because it shows the scholarship was not used for tuition. According to the NYU website, "International students are not eligible for scholarships." I guess somebody else gave him a scholarship, probably identified in the 19 pages, which was used for non-academic living expenses. Interest and dividends, as you have already noted, CAN be taxable to a student on an F visa. More research is needed. Good luck with your phone call this morning. I would expect the auditor to take the easy way out, inviting you to send in your documentation. That will NOT re-open the audit. It might be considered a request for appeal, but more likely it will just be a tactic to get you off the phone and burn up some time for the client to exercise his rights. That's usually how it works.

>>I'm just a simple RTRP.... I prefer to work with an appeals officer<< Well now, that's a big problem, isn't it? You aren't qualified to go to Appeals anyway! Why are we even having this discussion? According to Circular 230, "A registered tax return preparer may represent taxpayers before revenue agents... during an examination if the registered tax return preparer signed the tax return.... this right does not permit such individual to represent the taxpayer, regardless of the circumstances requiring representation, before appeals officers.... " Oh, I forgot--you only go by what the pubs say. How about Pub 5, Your Appeal Rights, which undoubtedly was sent to your client with the letter you mentioned? "You may have an attorney, certified public accountant, or an individual enrolled to practice before the IRS represent you. Your representative must be qualified to practice before the IRS." Please, MsTabbyKats. You are very earnest, but you are definitely out of your league.

"If it comes to doing "legal research" or something out of my scope, I'll refer him to a tax attorney. I can only go by what the pubs say...and how I interpret it in regard to his situation.... I'm just a simple RTRP....I know when I'm out of my league." Ms TabbyKats, you are definitely out of your league. We should have picked this up when you said you just "knew" you were right and didn't need to research something you already knew, ignoring the advice of many posters to review case law. And then you cited IRS pubs to prove your point when these pubs have NO legal weight at all (except perhaps to reduce penalties if you can prove they misled you). When a tax pro takes a position on a return, s/he must be able to back it up with what the IRS calls "substantial authority" or face huge penalties. Code Section 1662-4(d)(3)(iii) defines substantial authority. It starts with the Internal Revenue Code and contains Regulations, Revenue Rulings and Procedures, congressional intent, case law (some courts carry more weight than others), letter rulings, etc. In my Master's program, we would get an automatic F on a paper if we cited a pub to prove a position. If you are the one who prepared this return, you can be in a heap of trouble for taking the position you did without having valid authority for doing so. In our office, whenever we encounter a grey area we create a list of all sources of authority that justify our position. If the IRS challenges it and our client loses, at least we will avoid those hefty fines for failing to meet what they call a "reasonable basis" standard. Your client needs a tax attorney, EA, or CPA to represent him in this matter. You may need an attorney yourself, but perhaps the dollar amount is not high enough for the IRS to pursue a fine against you. At any rate, I'd stop being so antagonistic toward the auditor or she might just decide to go after you for taking the questionable stance you did based on IRS pubs.

So let's fight this one then! IT is time we stood up for our clients and ourselves!