EIC manipulation

[jimenright]

Taxpayers who have SE income could adjust thier expenses to increase the credit in certain situations. For example: The taxpayer could choose to have no written record of mileage expenses (thus they could not be claimed according to IRS rules) and in the process increase the EIC by increasing earned income. Can they be required to report expenses? Is there a rule that says you must report a particular expense even if you do not have documentation? Another method could be to report SE income as hobby income, thus disallowing losses that would lower income.

[taxmandan]

The IRS has issued statements that such manipulation of expenses to maximize EITC is wrong and they won't allow it. I'm not sure how they would argue that an expense is or is not ordinary and necessary to the business operation and thus deductible, if the business owner doesn't think it is deductible. But be forewarned theIRS objects to such activity by the self-employed and threatened major sanctions against preparers and taxpayers who are caught doing so.