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I disagree. A sole proprietorship has the same basic 'cost basis' in a business as any other business organization. True if the sole proprietorship is not keeping proper accounting records it is difficult to determine basis. It does not matter if the loan/capital contribution was "booked" as it was indeed an investment in the business or the business would not have had the cash to operate. It is not too late to book the investment/loan if it can be proved that it was made and not already been deducted or repaid. The transaction of repaying the loan with the sale proceeds has nothing to do with the recognizing of business operating income or loss but would effect gain/loss on disposition/liquidation of the business. Therefore, there are two issues, possible income/loss of the business on Sch-C and/or form 4797 and possible gain/loss on form 1040 sch-D.

The problem the letters are dealing with is as old as business itself. We all KNOW that many business operators do "Cash under the table" or "barter" transactions that are not reported. I have heard people that are on welfare, food stamps and Section 8 housing say "I am paid 'under the table' so I don't have to report the income and can keep my government assistance." Last tax season I sent 2 prospective new clients out the door after they used those very words to me. "...has created some heartache in the small business community." "There's an emotional thing when you get a pretty ominous-looking letter from the IRS [saying] you might have done some bad things." The only ones with heartache or emotional distress are the ones that know they have been underreporting income. Sorry, no sympathy here. I saw two waitresses get notices for additional income after the employer, two years later, was audited. Seems that tips on credit card payments were around 17%. Tips on cash payments were 2%. Hmmmmmmmmm Restaurant owner had to pay additional SS & Medicare tax on the calculated 15% shortfall and the waitresses involved all received letters showing they had incurred the additional income.

Well, we agree on something else!! At the firm for 2012, I think we did 120 NEW injured spouse forms where the spouse had delinquent child support. This is an area that I take very personally!! The children are MINE, and my disputes with their mother is not their fault, nor any reason for me not to take care of them. Even when I had no control over how she wasted the child support money, I set an example and sent a message to my now grown children that following the law, despite disagreeing with it, is the right thing. Also, taking care of your children is NOT optional, it is mandatory. I was diligent for 12 years.

We are currently up to date on all extended returns. 6 weeks later than previous years, but current. I told many of the extenders that the date was Aug. 15. It worked!!!