YOU SAY CREATIVE DEDUCTIONS—THE IRS SAYS OUTRIGHT OBSTRUCTIONS!

Contributed By: L J Sullivan CPA, MBA, L.L.M.

Fairy tales do come true, it can happen to you, but weddings are nondeductible!  If you tried to report your gala event as a travel and entertainment expense, even if you included one or more of your clients, you may have a bitter party who didn’t make the invite list come and ask for more than just a piece of cake undefined the IRS Auditor!

Perhaps you are an advocate of giving.  Charitable deductions are the way to go!  However, having your significant other donate your sperm to a sperm bank while possibly creating human life, will not a tax deduction create—no matter how valuable you believe his donation is to the promotion of human kind!

No matter how creative or not you have been on your tax filings, you may still receive the infamous IRS Audit Notice.  If you do receive a notice form the IRS, it doesn’t mean it is accurate.  It doesn’t mean you should automatically pay the amount demanded on the notice.   It is recommended that you retain a professional to represent you, as they are most familiar with the rules and regulations and the procedures to best advocate for your position and your taxpayer rights. 

Here are some things to consider if the IRS comes knocking:

• Don’t tiptoe through the tulips – Stay on Point: Many IRS notices just require you to give the IRS additional information to show why you do not owe the additional taxes or penalties that they are demanding.   You will need to bring documentation to the audit meeting to support your argument.  Only bring what you need for the issue. 
• Volunteer in your community – Not at your audit: Only give the auditor information that they specifically request and that are on point with the issue at hand.  If questions are hard to answer, tell the auditor you will need to get back to them on that issue.  Discuss the matter with your tax professional.
• Jack-of-all-trades? – Specialist needed here:    It is always best to have your professional CPA meet with the auditor instead of yourself.  This way the auditor’s inquiry into other potential audit areas will be appropriately addressed according to rules and procedures and taxpayer’s rights.
• Movin’ on up? – You have the right:  If you go ahead on your own and don’t agree with the assessment that the agent makes, and if you have an argument to make, tell the agent that you are not satisfied and want to appeal to his or her supervisor.  The agent may have the authority to deal at that point.  If not, you need to make your appeal.  If that doesn’t satisfy you, send a formal protest letter to the IRS District Director notifying that you intend to appeal.  This must be done within 30 days of the initial audit assessment and must be done with the proper forms.  If you lose your appeal, you can still take your case to tax court.  The further up the ladder you take your case, usually the better your chances are for a more fair settlement with the IRS.
• Strategic Planning – Time Management Control:  If you are under audit, make certain that you file timely extensions on your current year’s tax returns.  These current year tax returns are also open for audit. 
• Yours, Theirs and – Theirs:  Once your tax bill has been established, you basically have some options available if you are not able to pay the full tax bill.  Each of the options is complicated and professional tax advice should be sought to best choose the option that meets your tax situation.  Installment Agreements and Offers in Compromise are some of your choices.

Before you list your hair salon appointments as a tax deduction because your employer requires you to be well groomedundefinedand no you can’t deduct your soapundefinedand before you try to deduct your adult magazines as professional subscriptions because you are in “public relations,”  — remember, your creative deductions claimed may lead to your induction into the IRS Hall of Fame!

Copyright L J Sullivan, CPA, MBA, L.L.M.

IRS Circular 230 Notice:  We are required to advise you no person or entity may use any tax advice in this communication or any attachment to (i) avoid any penalty under federal tax law or (ii) promote, market or recommend any purchase, investment or other action.  This article is written for informational use only.  It is not providing professional advice and should not be relied upon other than for its informational use.  Retaining a professional in the field is required.  To contact the author, please email ljsullivancpa@aol.com and visit www.ljsullivancpa.com.

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