Borderline Deductions

[equinecpa]

I have a client who has some business expenses I have questioned.

One of them is clothing. Their business does require them to purchase certain clothes for shows. I allow their purchases from vendors selling only "show attire". However some of their clothing comes from the likes of Burlington Coat Factory which sells everyday clothes. I've explained that clothing is deductible as a business expense only if it is required for the taxpayer’s employment, unsuitable for general wear, and not worn for personal use.
They feel this still qualifies.

So my question is: As a tax preparer is it our duty to "judge" the clients decision on an expense such as this and disallow it. Or should I take my clients word on this, keep the emails where we've discussed this, and claim the expense?

Thanks

Carolyn

[Kram BergGold]

My thoughts

I can't imagine what they would be buying that would not be adaptable to general use.
However, if you have thoroughly explained all this and the client insists that he or she can prove it is not adaptable to regular use then document everyhing and take the deduction.

[Nashville]

Disclosure

You are required to disclose anything for which the preparer disagrees is a supportable position. This differs from not having enough subject knowledge to make a decision.

If I read your post correctly, you know enough about these clothes to realize they are just standard attire, and not adaptable to the special needs of trade or business.

The disclosure form is #8275 and if you have these kinds of reservations you are required:

1) File form 8275 with the clients return.
2) Do not take the deduction, and form 8275 will not be necessary.

Before you decide on #1, some of us call the 8275 the "please audit me" form. I have always opted for #2, and I have had a couple people simply walk away and go to "Shifty-Eyed Sam" across town - the tax preparer who will deduct anything.

The disclosure is not required for something that is a grey area or borderline. It is required when something actually "crosses the line." It would be something that 2 of 3 preparers would judge the deduction to be not supportable.

[taxmandan]

The Tax Courts have ruled on this matter and support the IRS position re: clothing. It has to be uniform type clothes unsuitable for wear away from the job. One audit, theIRS allowed the shirt because of the company logo and uniform style but disallowed the pants because there was no logo or other uniform type of appearance to the pants.

If the client insists on the deduction, then use the Form 8275 and disclose the position as contrary to the rules.

[Zee]

Your a tax professional, your client's aren't. If they are going to question your conclusion, I would give them only two choices:

1. Attaching a disclosure which will increase their risk of audit.
2. "Fire them"...don't let them "fire" you (it feels better). Just nicely tell them you would rather not do business with them because such a relationship requires "trust" and "confidence".

[ChEAr$]

I have a client who has some business expenses I have questioned.

One of them is clothing. Their business does require them to purchase certain clothes for shows. I allow their purchases from vendors selling only "show attire". However some of their clothing comes from the likes of Burlington Coat Factory which sells everyday clothes. I've explained that clothing is deductible as a business expense only if it is required for the taxpayer’s employment, unsuitable for general wear, and not worn for personal use.
They feel this still qualifies.

So my question is: As a tax preparer is it our duty to "judge" the clients decision on an expense such as this and disallow it. Or should I take my clients word on this, keep the emails where we've discussed this, and claim the expense?

Thanks

Carolyn

Yes, I think it IS our duty. You've not said anything about client's "show clothes" which
indicate they are unique and can't be worn as general wear. Certainly we're not talking
about uniforms here. I know there are tax court cases relative to specific circumstances,
but ordinary clothing doesn't give rise to deductibility.

In any event, I would NOT take the deduction along with the disclosure form.

Ask for pictures of the clothing and get client to tell you (in writing if possible) exactly
why the clothing is not suitable for on the street wear.

Or...............ahem! Goodby, former client.

[dyne]

I believe I read that a tax preparer can be fined $1,000 for claiming a deduction or credit
which cannot be justified. That is sufficient reason to NOT allow a deduction for clothing
which is adaptable to street wear. Explaining to a client about this penalty should
satisfy them as to why you can NOT allow any unallowable deduction or credit.

[DaveO]

I often have Mary Kay consultants who want to deduct their "business attire" I reply that only uniforms and protective clothing are deductible and unless those are steel toed pumps they are a personal expense.

[taxxcpa]

Tuxedo

I had a client that wanted to deduct a tuxedo. His job required that he attend events that required a tuxedo, so he thought it would be deductible.

Since he could wear it to other events such as weddings, parties, it did not seem to fall in the category of a 'uniform' or protective clothing.

[Nashville]

Borderline

I don't think a tuxedo is spoken in the same breath with conventional clothing, dress clothing, casual clothing, outdoor clothing, etc.

I would be somewhat acceptable to deducting tuxedo costs.

[Larmil]

I don't think a tuxedo is spoken in the same breath with conventional clothing, dress clothing, casual clothing, outdoor clothing, etc.

I would be somewhat acceptable to deducting tuxedo costs.

You would probably lose at an audit.

[Davc]

I don't think a tuxedo is spoken in the same breath with conventional clothing, dress clothing, casual clothing, outdoor clothing, etc.

I would be somewhat acceptable to deducting tuxedo costs.

Tuxedos have never been ruled deductible in court unless they where along the lines of something Liberace would wear.

[equinecpa]

Posts 7, 8, 9 & 10 are just the reason why I posed this question. As tax preparers we cannot come to a consensus on what is deductible. Should WE be the one deciding what meets the definition or not? If we explain the rules to our clients, document our explanation and then let the client make their own decision, have we not done our duty? Or is "interpreting" the law now are job too??

[Zee]

Posts 7, 8, 9 & 10 are just the reason why I posed this question. As tax preparers we cannot come to a consensus on what is deductible. Should WE be the one deciding what meets the definition or not? If we explain the rules to our clients, document our explanation and then let the client make their own decision, have we not done our duty? Or is "interpreting" the law now are job too??

I thought "interpreting" the tax law has always been the responsibility of tax preparers. That's why we read rulings, cases, etc.

[JG EA]

I write down the deductions they tell me. If it is clear to me they are not deductible I do not include the deduction. I put off the explanation until the whole return is done. The issue usually doesn't seem as important to them then, especially if they are happy with the overall return.