Audit Question, Please

[rfk]

My audit client via the auditor is having SE tax assessed because of Schedule C adjustments disallowed, even though the overall Schedule C situation was negative. How the heck does someone assess SE tax on adjustments? What about the loss? Sorry for the griping. This does not make any sense. Am I missing something?

rfk

[rfk]

Rephrase of thought

Let me clarify that after the adjustments that a loss still exists. So there would still be no SE Income, therefore no SE Tax. So .. I am still at a loss (no pun intended) for an answer.

rfk

[BHoffman]

Dunno. I think they are training new folks. Maybe your auditor is learning the ropes.

Will you keep us informed?

[Snaggletooth]

Ridiculous

I thought I had seen everything, but this takes the cake...

[erchess]

I know

that with Sch C still showing a loss there can be no SE Tax but I don't know where to find a Cite that would prove this to someone who does not know it. Perhaps reference to Sch SE and/or its instructions would suffice and failing that I would be inclined to ask for a Supervisor.

The only thing I can think of is that perhaps the auditor is under the mistaken impression that there is now a gain on the Sch C. I have found that it sometimes helps to write out the math like a fourth grader's homework.

[rfk]

The Auditor Saw the Light

Update with loss on Schedule C exclusive of Adjustments. The auditor in our voice conversation this morning stated that she did not know what she was thinking and said that there is no SE Income and therefore no SE Tax.

She realized this between a voice message left yesterday afternoon and a phone call this morning. This is a great outcome for my client and me even though my client still has a big adjustment, with related "income" tax due.

rfk

[AuditorTurnedGood]

Sounds like the light probably turned on on the drive home for her. We all have our moments.

[joanmcq]

Their software screws this up quite a lot. Always recalc the SE tax; for some reason the software does not seem to automatically update; it has to be keyed by the auditor and sometimes they forget.

[mactoolsix]

My audit client via the auditor is having SE tax assessed because of Schedule C adjustments disallowed, even though the overall Schedule C situation was negative. How the heck does someone assess SE tax on adjustments? What about the loss? Sorry for the griping. This does not make any sense. Am I missing something?

rfk

SE Tax only kicks in when
1. Net SE earnings are over $400, or
2. You are a church employee with over $108