Seriously Incompetent Auditor

[MsTabbyKats]

Note...the "scholarship" for Spring 2011 was for tuition paid in in 2010....so it should not be included in 2011 anyway.

How can she make this 2011 income...when it was a scholarship directly from the school to directly offset tuition???

[MsTabbyKats]

So...why isn't anyone telling me "what a great auditor" she is?

[ILLMAS]

They can't until they see the finding, not he said she said....

[Jack from Ohio]

They can't until they see the finding, not he said she said....

Ditto. Only what is in writing has any value.

[MsTabbyKats]

I can't post the findings from the auditor...but it:

disallowed his tuition as a deduction

added scholarship as income (although there is no scholarship income on the "Wage & Income Statement")

added dividends & interest as income (although non-resident aliens don't need to declare this income)

And, she did all this within 4 days of receiving a 19 page fax from him!

[jainen]

>>.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!

[MsTabbyKats]

>>.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!

You're a very funny person. With social skills you kind of remind me of Sheldon Cooper. Don't take that as an offense....since I love Sheldon. His complete lack of "empathy and understanding of human emotions" is what makes him so endearing.

Oh....And when did I say anything about this man's ethnicity? Someone else said the problem may be because he's Colombian. I don't know his pigmentation or religion. I only know that his English is impeccable....with only a hint of an accent.

You assumed he was either selling oranges on the roadside or part of the drug cartel back in his "developing country".

If I say another word...it would mean that I'm stooping to your level.

For all those that gave helpful input...thank you.

Case closed.

[Guest Taxed]

MsTabbyKats please keep us posted how the case is finally resolved and what did you find out at the conclusion. I think it could be a learning moment for many of us. I certainly have not seen anything wild like this in many years!

[jklcpa]

>>complete lack of "empathy and understanding of human emotions"....

Oh....And when did I say anything about this man's ethnicity?

You assumed he was either selling oranges on the roadside or part of the drug cartel back in his "developing country". <<

Whoa! Insulting other members on here that are trying to help you will get you nowhere fast. Empathy and understanding human emotion won't help you prove your case. And you were the one to bring ethnicity into this when you said that the client is from Columbia here on an F-1. Then you mentioned maybe being Columbian had something to do with the extra scrutiny but you aren't sure because you did a Mexican's return with the exact same scenario but haven't had the issues with that one yet. So you were the one that brought ethnicity into the discussion. And on another point, no one suggested or even implied that this person was working "in the fields". You seem to be looking to be offended when I don't see where anyone here has been offensive, and everyone here including jainen, MAS and JoanMcQ have tried to steer you in the proper direction to prove your case about the MBA being used to maintain or improve job skills for his current employment. I don't see that their questions raised in this regard are offensive at all and are right to the point that you must prove to win this case. You've received excellent advice so far.

If all you want is for us to say that you have a bad auditor, well maybe you do, but you are having to work with her. You've given us the facts piecemeal and have been adding to it as you go along, and we also don't know what your client said directly to the auditor that may have led to some of her conclusions.

If you want us to say that it's impossible for the auditor to have received a large package of documentation and to have responded to it within 5 days, we can't say that that is inconceivable either. I doubt that it took 5 days for the auditor to read 19 pages and consider them.

Concerning the scholarship, was all of it used for tuition, books, fees and supplies? Was any of it used for room and board? Was your client involved in any teaching or other activities related to receiving this scholarship that could be taxable as compensation? Have you reviewed the actual charges from the school to see everything that this scholarship covered?

[jainen]

>>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.

[joanmcq]

Minimum requirements for the job is another reason to disallow the MBA deduction.

As I said before, the deductibility of an MBA is very much a facts and circumstances issue. I don't see where you have reviewed the relevant case law closely and stated where your client's fact pattern fits with the winning cases vs. the losing cases. In fact, you haven't even mentioned any of the cases, which leads me to believe you haven't read any.

Why is your client still talking with the auditor? And what do the tuition/1098-Ts/transcripts show? Please stop mentioning the wage & income transcript; the only place a scholarship will show is on the 1098-T.

And yes, I've had a response within 5 days. I had one within 5 hours on a case with which I was working very closely with the auditor. Actually, it was more like an hour.

[MsTabbyKats]

>>complete lack of "empathy and understanding of human emotions"....

Oh....And when did I say anything about this man's ethnicity?

You assumed he was either selling oranges on the roadside or part of the drug cartel back in his "developing country". <<

Whoa! Insulting other members on here that are trying to help you will get you nowhere fast. Empathy and understanding human emotion won't help you prove your case. And you were the one to bring ethnicity into this when you said that the client is from Columbia here on an F-1. Then you mentioned maybe being Columbian had something to do with the extra scrutiny but you aren't sure because you did a Mexican's return with the exact same scenario but haven't had the issues with that one yet. So you were the one that brought ethnicity into the discussion. And on another point, no one suggested or even implied that this person was working "in the fields". You seem to be looking to be offended when I don't see where anyone here has been offensive, and everyone here including jainen, MAS and JoanMcQ have tried to steer you in the proper direction to prove your case about the MBA being used to maintain or improve job skills for his current employment. I don't see that their questions raised in this regard are offensive at all and are right to the point that you must prove to win this case. You've received excellent advice so far.

If all you want is for us to say that you have a bad auditor, well maybe you do, but you are having to work with her. You've given us the facts piecemeal and have been adding to it as you go along, and we also don't know what your client said directly to the auditor that may have led to some of her conclusions.

If you want us to say that it's impossible for the auditor to have received a large package of documentation and to have responded to it within 5 days, we can't say that that is inconceivable either. I doubt that it took 5 days for the auditor to read 19 pages and consider them.

Concerning the scholarship, was all of it used for tuition, books, fees and supplies? Was any of it used for room and board? Was your client involved in any teaching or other activities related to receiving this scholarship that could be taxable as compensation? Have you reviewed the actual charges from the school to see everything that this scholarship covered?

Please read post #21. That was where "extra scrutiny" was brought up. Not by me.......

The scholarship was by NYU...and directly used to offset tuition. That's it...nothing hidden. NO work for the school...NO payments for teaching....NO issue of any W-2 or any 1099-Misc by the school. NOT for 2010 Not for 2011 Not for 2012!

He received 2 pieces of paper for 2011. A W-2 from his employer...and a 1098-T from NYU.

Really...nothing you're not seeing.

[MsTabbyKats]

Minimum requirements for the job is another reason to disallow the MBA deduction.

As I said before, the deductibility of an MBA is very much a facts and circumstances issue. I don't see where you have reviewed the relevant case law closely and stated where your client's fact pattern fits with the winning cases vs. the losing cases. In fact, you haven't even mentioned any of the cases, which leads me to believe you haven't read any.

Why is your client still talking with the auditor? And what do the tuition/1098-Ts/transcripts show? Please stop mentioning the wage & income transcript; the only place a scholarship will show is on the 1098-T.

And yes, I've had a response within 5 days. I had one within 5 hours on a case with which I was working very closely with the auditor. Actually, it was more like an hour.

And I have said....there was no mention of a scholarship on the 1098-T, Just what he was billed for....$51,000+. And he has the transcripts from the school showing the payments. No scholarship money was used to offset any tuition bills he got in 2011. Just paid by check....

No...I haven't read any cases. The clients is doing the same work in the same occupation he always did. Really....not much to read up on...since the deduction is allowed if he is staying in the same field. I like to use my time wisely. I don't need to read up on things that I know.

I don't even need to related "his old job" in Colombia to his job here. It's the same job. Just...he's more knowledgeable in it now.

[MsTabbyKats]

>>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.

I really don't know how to interpret this.

I will just say:

1. If the auditor was "competent" she would not have added income from interest/dividends

2. If the auditor was "competent" she would not just add some random "scholarship" to his income...because no where does his records indicate any scholarship for the tax year in question.

3. As far as "new occupation"....the client has a letter from the current employer, stating that his MBA improved his skills in the field that he had be working in Colombia...and that he was hired for this job because he had these skills. They did not hire him to "give him a break"...but rather that he had specific expertise.

As for "tax court"....I don't think a few thousand dollars is worth my clients time or efforts. He'd probably just rather pay....but prefers to not pay.

[Catherine]

Can you ask to speak to this auditor's manager or supervisor? That is allowable in other areas of the IRS. Then either deal with the supervisor or request the case be transferred to someone with greater experience in IRS regs.

[MsTabbyKats]

Can you ask to speak to this auditor's manager or supervisor? That is allowable in other areas of the IRS. Then either deal with the supervisor or request the case be transferred to someone with greater experience in IRS regs.

I'm going to call on Monday (hopefully the POA will be on file or my dedicated fax line will be fixed).

If I feel that she is "not connecting the dots" I was planning to find out about speaking to a supervisor or have the case transferred. I'm also going to ask the taxpayer advocate for advice.

[Lion EA]

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.

[Guest Taxed]

I am not sure if the facts of this particular case fits the example in Quickfinder, but MsTabbyKats may want to look into the citations below and see if it helps her case??

The cost of obtaining an MBA is deductible if the education

maintains or improves skills used in the taxpayer’s current job,

business or profession—as long as the education: (1) is not a

prerequisite for the taxpayer’s job and (2) does not train the

taxpayer for a new business or profession (Allemeier, TC Memo

2005-207; Beatty, TC Memo 1980-196). However, the IRS may

take the position that an MBA automatically qualifies the taxpayer

for a new business or profession. (Ltr. Rul. 8714064)

[jainen]

>>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.

[SaraEA]

"No...I haven't read any cases. The clients is doing the same work in the same occupation he always did. Really....not much to read up on...since the deduction is allowed if he is staying in the same field. I like to use my time wisely. I don't need to read up on things that I know."

Your client needs a new representative. You obviously know more than the courts and the auditor, but the fact is you have to deal with that auditor. My review of case law is that the deduction is NOT allowed in this case. You say it is, without having reviewed legal precedent. You may be right, but you have to prove it to the auditor. You refuse to do the work to establish proof because "I don't need to read up on things that I know." You prefer to blame the auditor. Please spend the weekend looking up these things you think you already know, keeping your contempt for the auditor out of the picture, and come back on Monday with some substantiation that you are absolutely right, might be right, or are completely wrong.

You act as if the auditor is asking you to prove that the sky is blue. You refuse to offer any proof because you just know it's blue. That's not the way tax audits work. The burden of proof is on your client. The auditor already has a boatload of cases proving her position. You have to present a boatload disproving it. To you that may not seem like using your time wisely, but it's what representation is all about.

[MsTabbyKats]

>>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.

How did I change my story?

Worst case scenario...taxpayer owes about $3000. (He had a very low W-2 in 2011.)

He paid...out of pocket $100,000 for tuition. He isn't poor and he makes a great salary now.

This is more of an annoyance for him than "a problem".

Taxpayer cannot believe the auditor told him she doesn't know where the scholarship came from!

I'm sure taxpayer and his friends are all laughing about the IRS...as is the rest of the world.

This is not something that will go to court. Taxpayer is willing to pay his fair share....just not pay more than that.

However...I am flattered if you do agree with me.

[Guest Taxed]

I am sure your client will have a good story to tell his friends when he returns home! And like many US educated persons may even become a high ranking official with the Columbian Govt. I think he can have some fun with this in bilateral talks??

[Cathy]

OK...more details

The taxpayer is from Colombia on an F-1.

Let's put aside whether or not the tuition is a deduction.

The auditor included, in her audit (although a minimal amount), dividends and interest. Non-resident aliens do not pay tax on dividends and interest.

He was in this field in Colombia and came here specifically to improve his skills and work in this field. (He worked in Colombia in early 2010...then came here...did not work here...but studied for the rest of 2010)

The 2011 1098-T showed only tuition from 2011...no adjustments from other years. There is nothing "hidden" in any 2011 forms.

In any case...she wants him to prove he paid the tuition for 2011. So, if it not a deduction...then why is she asking for "proof" of payment? Sounds rather contradictory.

This auditor is not familiar with non-resident alien issues and MBAs.

The client is very "above board"......probably gave her too much info....which overwhelmed her.

One other thing......

He submitted 19 pages on 5/30....and got a letter dated 6/4. To me that sounded "auto generated". Did anyone ever get such a fast letter from an audit?????

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.

[MsTabbyKats]

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.

This client is so documented he sends me everything and the kitchen sink.

The letter he got says if he disagrees he should have a conference with a local appeals officer. When I speak with the auditor I'm to ask "how to get one"...and work with "the appeals officer".

I just noticed the letter came from "large business & international". One would think someone in that dept. would know interest/dividends aren't taxable to non-resident aliens.

I know that I can get very condescending (I have a lot of Sheldon Cooper in me too)...and I know I will be if I have to explain this to the auditor....and that scholarships used to pay tuition aren't taxable either.

Whether or not they will allow the deduction is a matter of opinion.

[ILLMAS]

Just out of curiosity why is the large business and international dealing with this case? They usually don't come out on cases like this.