Deductibility of work-at-home scams

[krazykev]

I have a client who got scammed by one of those "work-from-home" groups. The client paid a this "educational" institution for training that was never really provided, plus some professional fees to an associated tax club that was supposed to setup a corporation to run the business under. The corporation was never chartered by the State, but this company did get an EIN.

Since the corporation was never official in the State of residence we are going to ignore it for tax filing purposes and write it off as an idea that never really got off the ground and notify the IRS to close the EIN. The problem lies in the $2,300 paid for the "training." This institute is not accredited or found on the US Dept of Education website to be eligible for the tuition deduction or lifetime learning credit. However, these costs were incurred with a genuine business-purpose in mind so can it be written off on schedule C similar to a franchise or other work from home kit expense? I know that training to acquire a new skill is not normally a deductible business expense, but usually qualifies for an education credit or deduction. However, where this entity isn't qualified so I am not sure how to proceed.

Any thoughts, previous experience, or other ideas would be appreciated. THANKS!!

[oceanlovin'ea]

My thoughts

This person paid to have a corporation set up. She was starting a business as a self employed person. She paid to be trained in this line of work with the intention of making money and having profitable employment.

Unfortunately, there exists many companies that take advantage of people who don't know all that is involved in doing this type of work.

It is a failed business....one that was meant to be profitable. I think that they should be able to deduct their expenses of starting that business.

I did have a lady last year that had 2 businesses that she started, one was a travel business with a website and personal work getting business and the other was an internet sales business. She paid a LOT of money for training that did not really benefit her. She made about $50 from ebay sales. I did the schedule C and took her losses. She was trying. You could tell she was.

I think another point in their favor is that they learned from what happened. They aren't trying to take losses year after year, but just for the one year and they have pursued other avenues of employment.

Linda