TCMP audit - latest IDR

[BHoffman]

TP sold a bunch of household stuff totaling $1066. No substantiation for cost basis as the items were old and he didn't keep receipts for pots and pans, bedding, small appliances, etc. I'm looking at the latest IDR and they want it.

TP made a loan to a friend at no interest under a verbal contract. IDR lists amortization schedule and contract. Friend defaulted after a few repayments.

Any suggestions?

[Kram BergGold]

My opinion

I would fight the IRS on the pots and pans. It is inconceivable that anyone would sell household items at a profit. This should be a non taxable event as the items were sold at a loss. As for the loan. Your client did everything wrong. No written doc and no interest. I don't see that you have a leg to stand on trying to get a loss out of this alleged loan.

[BHoffman]

Thanks Kram. He's not looking to take a loss on the loan, but he doesn't want to get stuck paying tax on interest income that wasn't there. The loan was a small one, so it's more about principle than anything. (sorry for the pun)

IRS is citing Sec. 61 regarding the sale of the pots and pans and invites us to cite to exclude the income. Best I've found so far is 165(c), losses on sale of personal property does not fall under any enumerated categories. Any suggestions on that? Like I said, TP did not save receipts for these varied old small items.

[DaveO]

Just curious

Did the IRS find the income in a bank record analysis? Otherwise how would they even know about the income? This would certainly reinforce the old saw about never depositing cash in the bank.

I would be helping the taxpayer write a letter to his congresscritters on this one. Sometimes IRS agents need to be reminded that Congress writes the tax law not them.
When I wrote my congressman about the IRS headliner regarding the deductibility of self employed health insurance for a 2% shareholder a couple years ago I got a call from one of his aides within a week or so.

[veritas]

TP sold a bunch of household stuff totaling $1066. No substantiation for cost basis as the items were old and he didn't keep receipts for pots and pans, bedding, small appliances, etc. I'm looking at the latest IDR and they want it.

TP made a loan to a friend at no interest under a verbal contract. IDR lists amortization schedule and contract. Friend defaulted after a few repayments.

Any suggestions?

Was the loan under $10,000?

look at page 3-20 in TTB.

[BHoffman]

I believe the loan was under $10,000

[S T]

Cash

I only have one client that deals in cash which is a gas/convenience store, and his particular franchise does not take any credit cards, only debit cards. That is about the most exposure I have to cash these days,

Oh my gosh! For the average taxpayer is there still Cash around? Are there still Cash transactions? I haven't had any in so long, I hardly know what cash looks like.

All of my clients want to pay me with checks and we hope that they are good and will clear the bank, or they want to do online banking transactions, or some would really rather that I accept MC or Visa.

Actually I think I only have $20 cash in my purse and maybe some change, my husband takes $100 a month Cash for spending money and the rest is all credit card transactions. I hardly write checks anymore, as I use online banking.

We can even go to McDonald's for lunch and use a credit card now, or go through a drive thru and use a credit card.

Hmmm, why does anyone carry cash? Besides there is all of that counterfeit money out there circulating, particularly on small bills. And I am sure I wouldn't be able to tell a counterfeit bill from a real $ bill.

On to BH post, what taxpayer is going to have receipts for household items that they might have sold at a garage sale? Guess the concept could be good if we were dealing with charitable contribution deductions, and asked the t/p to produce the original receipt of the item donated to establish a cost value. Like that is ever going to happen, rarely.

So IRS is going to tax this t/p merely because they found a cash deposit of $1,066 that t/p states was rom a garage sale of personal items? Are they then also going to also try to assess self employment tax to this amount?

Guess we all better keep and advise our taxpayer's to keep every receipt and make sure we make notes on them and hope that the printed receipts don't fade into a total blank piece of paper. Let's see how many years would we have to keep these receipts or some form of record, 10 years, 20 years. I am sure we can read them in 2025!

S

[BHoffman]

My Grandpa always had a wad of cash in his pocket. His "walkin' around" money. He'd peel off couple of dollars for my sister and me and we'd scamper off to the corner store to buy candy cigarettes and bubble gum cigars and other sweet contraband. "Folding money" was a big deal to a 9 year old in those days.

[David1980]

Hmmm, why does anyone carry cash? Besides there is all of that counterfeit money out there circulating, particularly on small bills. And I am sure I wouldn't be able to tell a counterfeit bill from a real $ bill.

So you can give your friend $20 to pick you up some late night fast food of course.

[newbie]

Did the IRS find the income in a bank record analysis? Otherwise how would they even know about the income? This would certainly reinforce the old saw about never depositing cash in the bank.

I'm curious too, was this a result of a bank record analysis or how did the know about the income? Or the loan?

[AZ-Tax]

Why not write off loan if...

If this TP's friend is a real friend, have the TP draw up a letter with all the facts about the loan, amt, date, etc. and have the friend sign it.

I am curious to how the IRS concluded their was any income.

I rarely keep any cash on me. When I go to Micky D's, I will buy a Dr Pepper w/double cheeseburger (back when they had the dollar menu) and pay about $2.08 with credit card.

[BHoffman]

FYI: I am not representing this client to the IRS. I refer most field audit work to an ex-IRS guy who specializes in that kind of work. I only do the "legwork" - finding receipts, making copies, etc.

IRS discovered this in the bank deposit analysis. TP is meticulous about keeping records. He is extraordinarily bitter about this audit and feels he is being punished for doing the right thing. That is another story.

The IRS proposes changes to his timely filed 2005 income tax return (I didn't prepare it). The prior preparer incorrectly reported the loss on the sale of a business building as capital loss. Therefore TP would be receiving a refund for that year. I'm concerned about the SOL for refunds as that date would have been 04/15/08? Would it follow the same rules as if the TP amended the return, and does he lose the refund?

I've asked the ex-IRS guy, but he wasn't exactly clear. I do trust his experience. He works with a good firm and came highly recommended by a trusted colleague. This audit began on 04/08/08.

This is a very small return that probably would have been just surveyed if it wasn't a TCMP.

[joanmcq]

After going through a cash analysis for a client, I now document all wierd deposits in my personal account; rebates, the check you get from citicard for your cashback rewards, the escrow refund from the mortgage....you name it.

I like the new Wells Fargo ATMs; no envelope and they give you a reciept with a copy of the deposit check printed on it. Very, very cool.

[Kram BergGold]

More

On the pots and pans. Create a Cohen style basis. Have him list the items sold and their approximate cost based on a Cohen style estimate. Argue, that since all items were sold at a loss and the loss is not allowed that this approach will be accepted by any court and that your are headed to court if the examiner persists.
As for the gift/loan. Find the check your client wrote to the person who got the money and then a letter from the donee/borrower explaining how much he recieved and how much he paid back and how much will be treated as a gift. As long as the gift part is under 10k there shuold be no issues. If your client can't prove that he ever gave the money to the borrower/donee then you have a problem maybe.

[les grans]

That would be "Cohan" as in George M. Cohan, I think.