PPR to avoid SE Tax

[DaveinTexas]

I've seen this twice now and it boggles my mind. New client comes in for a 2010 return that a CPA prepared in Feb. The client is self employed (Sch C) and had income and expenses reported on the C. One expense that jumped out was $15K in rents. The TP's gross revenue was only $45K.

Oddly enough the same $15K was reported on line 21 on the 1040 as Personal Property Rent. I inquired as to what the TP was renting and to whom. TP said the CPA told him this was a method of reporting the income in a manner to save taxes. I agree with that statement but it doesn't make it right. Later in the interview the TP said the CPA said the rents were for renting his car to the sole proprietorship. This same vehicle was being depreciated on the same return! Wowsers!

I have recommended we amend the return to fix the "arrangement". As it turns out a child care credit of approx. $1080 was also missed so that will help with the SE tax increase.

My question is if we amend the return to change the vehicle expense method from actual to standard mileage, will we need to file a 3115? 2010 was the first year the vehicle was placed into service. The vehicle is a 35mpg Honda Accord.

TIA.

[Burke]

IMO, if you amend the return adjusting the method of expensing mileage and it involved the first year, no 3115 would be necessary. Assume you are eliminating depr, other auto expenses and the rent!

[DaveinTexas]

thanks for the input

IMO, if you amend the return adjusting the method of expensing mileage and it involved the first year, no 3115 would be necessary. Assume you are eliminating depr, other auto expenses and the rent!

Yes indeed, the rent and auto expenses will be removed! Thanks!

[JON]

So you have

the auto depreciation and no other expenses for the auto but the $15,000? If that is the case get the actual expenses and mileage(s) and do it right. Forget the $15