Mileage Allowance

[Brian EA]

A referred client called yesterday and asked if he has to claim the travel allowance he received. He said that he has been paid $600 per month for the last 3 years and has never reported it as income.He is an inside salesman and has never travelled outside of the office to visit clients.He also said that his last tax preparer told him that he does not have to report the payment as income. The employer has no accountable plan.
I told him that he has to report the payment as income since he has no expense to offset it.
He is now thinking if he should really have me prepare his return.
Any input would be very much appreciated

thanks
brian

[solomon]

Based upon this information, I would send him back to the previous preparer.

[GRich0656]

Was the amount included in his W-2? It is possible that is was, and he is unaware of it. How was the amount reported to him at year end?

[FEDUKE404]

Btdt

I had one of these slippery clients, or moreso his slippery employers.

Unbeknowst to me, he was getting a monthly auto allowance and such income was not included in his W2. Whenever "legitimate" travel was involved (vz overnight stay et al) he would file an expense account for that, and was paid/reimbursed using a per diem arrangement in most cases.

At some point he wanted to start claiming his "mileage" so we worked up a Form 2106. Client was not too happy but I reduced his allowable expenses by 12x his monthly auto allowance.

After that he went elsewhere, and I shed no tears.

FE

[Corduroy Frog]

More Facts

I told him that he has to report the payment as income since he has no expense to offset it.

There may have been expense to offset it. It has warts, however. Firstly, I seriously doubt there is a log or any record of his auto/travel expense. If he cannot reconstruct such a log based on fact, claiming this expense is SOL. Secondly, there would normally be serious doubts as to $7200 in such expenses unless this taxpayer is uniquely employed.

And worst of all, just reading between lines, I believe the REAL source of this problem is that the employer is using it to avoid paying payroll taxes on $7200 per year. And if it were investigated, there are likely more employees being treated the same way.

[erchess]

Did he say why

he left his previous preparer? I always ask because people are often quite up front about telling me things that cause me not to take the business or to proceed with caution. For example a year ago I turned a client away because he was unhappy with the fee he had been charged which was less than I would have wanted for the return. I also let a guy go one time when he told me that his previous preparer had been put out of business by the State as an alternative to jail but he wanted his return prepared the same way.

Based on what I see here I think there are two realistic possibilities and both have been ably pointed out. I would ask him to call the payroll department or the firm owner in my presence and help me clarify what is going on and if he refuses I would send him out the door.

[Brian EA]

Was the amount included in his W-2? It is possible that is was, and he is unaware of it. How was the amount reported to him at year end?

He gets a check every month end and the income is not included in his W2. He does no travelling except commuting from home to work and back.
His prior year tax preparer retired.
His employer gets away without paying payroll taxes.
He has an appointment on the 3rd of june. What would be the best way to handle this other than chasing him out.

thanks
brian