jainen

>>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.

>>I wish they stopped using the term "refund"...because it's not.<< Yes, it is. From the beginning (Gerald Ford) Earned Income Credit was structured as an offset to Social Security taxes, which low income workers pay at a higher rate than many others. Ronald Reagan expanded it as "the best job creation measure to come out of the Congress." Although some on this forum view EIC as a give-away, most politicians understand that it is the most effective anti-poverty program we have. It pays for itself with increased payroll taxes and economic activity, as well as reduced welfare costs. That's why more than half the states have added to it.

>>I do hope you agree with me... this scholarship is not taxable<< Yes, I do. I mean, I would if it happened. But you say that is not what happened, which I already agreed with earlier. Neither of us seems to have any actual evidence one way or another, but I never saw it as much of an issue. Apparently the audit started with the $54000 deduction, and the scholarship came up in reviewing the taxpayer's own records other than 1098-T. As for the deduction, I don't agree with you on that. I think you need to research legal precedent to challenge the strong presumption. Something more than a letter saying an MBA is not required for the job.

>>she told the client she didn't know where she got her numbers from!<< That does NOT mean she didn't get them from someplace. Pull the transcripts, and ask for her workpapers while you are at it. And never let a client fax 19 pages of anything ever again. You know, there's a real good chance she got the mischaracterized number from HIM.

>>he supported the kids (which he did) but the IRS didn't buy it<< Perhaps because supporting the kids is not relevant to the question of dependency and head of household. All that matters is where they lived. Since his preparer would be "the last one to count" days in various homes, I agree that the weight of the evidence you have mentioned shows that the children's main home was not with their father.

>>someone who got into a bind based on his own choices<< What choices are you talking about? Perhaps Jack knows more than he has said, but for some reason he has not provided a single fact to explain why this entrepreneur was unable to pay his bills. All we know is that in the past he was credit-worthy and now is insolvent. Please tell me why you think being poor is his own fault.

>>a useful conceptualization of ethics has to differentiate between legal and ethical<< I agree, kc, and suggested that just a few days ago (in the thread "Who Is Responsible for Taxes Owed?"). In that case, an estate had been increased by the deceden'ts undeniably illegal avoidance of personal financial obligation. You described a similar case in which you had used a legalism (joint title) to quash the "emotional" issue of morals. But in this thread it's a bit different. I'm objecting to the prejudicial profiling as "irresponsible," when the only thing we know about the taxpayers is that they are poor.

>>Your point does not apply, due to the very definition of personal responsibility<< I wish that were true. The problem is that "providing and taking care of one's self and family" needs to be done within the law. I was responding to a comment about people who DO stay within the law, but are still accused of irresponsible behavior anyway. If you don't like the law, then deal with that. Don't blame the law-abiding citizens who are trying to take care of themselves and their families.

>>the ethics I grew up with about personal responsibility for my actions has been thrown away by our society such that the irresponsible people are living on my tax dollars<< Personal responsibility is a fine thing for one to apply to oneself. In my opinion, it isn't all that personal if one applies it to somebody else.

>>The rental property does have some equipment that I can take 179 deduction<< Not if it's a residential rental. Even for non-residential property, equipment used by tenants would probably not qualify. Anyway, the S-election will suspend the 179 carryover, though it won't time out the way an N.O.L. would.

>>I don't think a few thousand dollars is worth my clients time or efforts<< Wow, you're something! You keep changing the story and arguing even after you convince me and I agree. Perhaps you think I'm not sincere, but I'll bet others reading this thread are also starting to understand that you at least should not square off against this auditor on Section 162. Your best strategy is the thing you say you are going to do anyway. And please don't whine to ME about dividends and scholarships. I never mentioned those, at least after I realized the scholarship was a separate issue. I think they are meaningless; auditors often throw in goofy stuff like that so they have room to negotiate the real problem. Which is, in my opinion, $54,000, his only deduction since he can't take standard.

>>The only thing the shareholder is doing is obtaining buyers for the assets.<< You can probably get away with it if the corporation dissolves, but as a corporate officer with a material role in the dissolution she should continue to take a reasonable salary. Okay, less than it was during production. May we assume the 35K was a bona fide loan and not some variation of deferred compensation?

>>For all those that gave helpful input...thank you.<< You are very welcome! I'm not joking--I have indeed changed my mind and now agree with you completely. You can not expect success at the audit or appeals level. At least from what you have posted, I don't think you have enough control over matching the client's facts to the IRS interpretation of the law. My earlier suggestions, for directly addressing the auditor's position that "MBA was for minimum requirements of job," could too easily backfire. At this point I can only recommend them for the client to take to Tax Court. Since (as I presume) you are not admitted to practice in Tax Court, those suggestions must be set aside. For now I honestly do think your best course is just what you started this thread by asking about, i.e., a procedural attack on the auditor. In my opinion, that is a perfectly legitimate and professional tactic for serving a client's best interest.

>>Do I have an argument in my favor that can give a little relief from this mistake?<< Certainly. We have an enormously complicated system, and mistakes like this are expected and should be prepared for. The IRS has made it one of their top priorities this year. Although they emphasize one aspect by calling it "identity theft," obviously it is much broader than that. The question for you as a professional is how to fix it--not whose fault it was.

>>.why isn't anyone telling me "what a great auditor" she is?<< On further reflection now that I know more of the circumstances, I agree that it is outrageous for the IRS to treat a taxpayer this way, assigning an obviously incompetent auditor to review such a return. Ethnicity is probably a big factor here (as in most of MsTabbyKats threads). I don't see any reason to expect relief from Appeals, since the problem is the IRS system rather than the taxpayer's facts. Apparently the auditor won't look at the facts anyway, so why bother putting them in the context of legal precedent? It's definitely time for the Taxpayer Advocate!

>>taxpayer is from Colombia on an F-1<< So your position is that an American MBA will not qualify your client for a new job, because years ago he did related work in a developing country? So far you have't posted a single fact to support that, and have taken offense at our suggestions for what needs to be proven and how to research it. [i recommend you present the whole story at once when you go to Appeals. And focus on the taxpayer, not the auditor.]

>>read REALLY carefully<< I did put a disclaimer in my response, "as I read your original post." Your presentation is not very clear. You said tuition was on the wage and income statement, so I guess I misunderstood that to refer to the employer rather than a worksheet in your software. I also misunderstood that the taxpayer was working on the MBA to improve job skills, although I admit all you actually said was that the employer had declared it was not a requirement for the job. Anyway, if the audit has been closed then you can appeal. But the first thing I would do with the power of attorney is pull this client's transcripts, so you can see what the auditor saw. What difference does it make if the auditor IS incompetent? The only thing that matters is whether she is right.

>>She just decided..<< Yep, that's her job. >>Last time I checked...scholarships used for tuition are not taxable.<< Better check again. If paid by an employer (that is, a benefit for service as an employee) it is taxable compensation. And as I read your original post, it was never claimed as excluded income anyway, but rather as a deduction. In disallowing a deduction, the auditor is not required to find a new tax break to replace it. That's YOUR job. Really..

>>The MBA was 1,000,000% to improve his skills in his current occupation.<< I doubt Tax Court will be impressed by your math, especially since it's irrelevant anyway. Basically the IRS position is that an MBA automatically qualifies the taxpayer for a new profession. You will need to show, for example, that graduate study in THIS field don't usually lead to promotion into management, or that management is not a different profession. Or maybe your client was extra smart, already working at a level that typically does utilize an MBA. This is a well-litigated issue, so there ARE good arguments and precedents out there. Knock off the hyperbole and the ad hominem attacks (not to mention the typos), and get real.

>>He was already working in the field<< You might win this, but I wouldn't take that for granted. It doesn't matter that the education is appropriate for the field he is already in and he won't use it for a new job, if he COULD use it for a new job. Tax Topic 513 (http://www.irs.gov/taxtopics/tc513.html) explains, "To be deductible, your expenses must be for education that (1) maintains or improves your job skills, or (2) is required by your employer or by law to keep your salary, status or job. However, even if the education meets either of these tests, the education cannot be part of a program that will qualify you for a new trade or business." Before you run to Appeals or Tax Court whining about somebody else's incompetence, you'd better do your own job. This case will take technical research--you have to prove a negative. Generally an advanced degree qualifies a person for a better job. Please explain why this is not true for your particular client.

>>I have been able to assemble enough data to prepare the individual return that includes the disregarded entities on schedule E but have little confidence in their accuracy.<< Either you have enough data or you don't. If you have a little bit of confidence even though you can tell he's obviously a lying troll, go ahead and sign the return based on his unaudited representations. If you have no confidence because the information appears incomplete or inconsistent, tell him what you need and offer to help (at your hourly rate for bookkeeping or whatever is needed). Since he already "has resisted taking these required procedures" there may be nothing you can do for him. I think that's his decision, not yours (assuming you are in business to do business).

>>I've seen his paystubs, and it is being repayed<< Yes, his LOAN is being repaid. But that was only $50,000, not enough for the down payment on his home. So didn't he also take out a HARDSHIP distribution?

>>This fellow has already skated on $145K of COD on his personal return in 2011 by being insolvent.<< Our elected representatives make the laws. Concerning the debt economy developed during the prior administration, there are excellent reasons public policy now calls for such clean starts. As long as he follows the law, why should we disparage his "tactics"? Perhaps it's the law you don't like, rather than the people who follow the law.

>>strictly enforce the original language<< Easier said than done!. There is a lot of disagreement about whether the original meaning of some words in the second amendment, like "arms," includes technological concepts that didn't even exist until 200 years later. And even more fundamental is the question about what exactly the original language WAS, especially about that first comma that was approved by Congress but not copied in the ratified version.

>>can he take the insolvency exception on his personal return?<< No, insolvency (and reduction of tax attributes) must be calculated on the corporate level. Why should you feel guilty? It was entirely his own choice to remain an S-corp during his years of loss, and he personally claimed all those losses. In other words, he's ALREADY deducted that money, and then stiffed the bank that actually paid it!