don't need no stinkin' cite...

[Snaggletooth]

Obviously borrowed from the ChEAr$ reference in another thread...

Well, what about it folks? Like most of us, I have come to the board several times for advice and have been told "No, you have no cite to support your position."

In some of these situations I had no cite to support me, but also no cite to DISALLOW me either. It's like if I can't find a cite that allows me to go to the bathroom, then I can't go.

There are two ends of this spectrum - one wants to stifle creative thinking by limiting the activity to what is given a blessing by the cites. The proverbial "box" that stops people from "thinking outside the box." The other end of the spectrum espouses positions which may not be specifically cited, but flies in the face of existing cites and clearly violates their spirit and thought process.

Are all of us somewhere on this spectrum? Tax symposium lecturer Guido van der Hoeven says all of us have a "chicken" factor, meaning all of us have some degree of liberal position but also a limit beyond which we will not go.

Asking for a cite is common among us, and is usually the result of someone shooting from the hip instead of offering authentic information that will resolve the query with authority. In some cases maybe we DO ask for a stinkin' cite when it is unnecessary.

Comments?

[Bees Knees]

“All income is taxable and no expense is deductible. Any exception to this rule requires a citation.” – Bees Knees, 2013.

In fact, when IRS prepares a substitute return for a non-filer, they include everything in income and nothing for deductions, even if it is something easy to prove like mortgage interest reported to IRS on a 1098. When you petition the Tax Court, everything stated as a tax fact requires a citation.

I once knew a tax preparer that said taxes are not an exact science. After inheriting half of his clients after his death, I understood why he said that. He even allowed a deduction for hair cuts for a TV anchor person on Schedule A as a business deduction. He wasn’t trying to evade taxes. If he had knowledge of actual court citations that disallowed deductions for hair cuts by TV anchor people, he would not have taken the deduction. Thus, his naïve state of mind concerning actual citations allowed him to be creative without having the guilt of knowing one way or another whether the deduction could stand up in court.

Being naïve allows one to take a creative tax position that seems logical with a good conscience because one does not have the knowledge that it is in fact wrong. Citations have a way of spoiling a good theory.

[BP.]

“All income is taxable and no expense is deductible. Any exception to this rule requires a citation.” – Bees Knees, 2013.

In fact, when IRS prepares a substitute return for a non-filer, they include everything in income and nothing for deductions, even if it is something easy to prove like mortgage interest reported to IRS on a 1098. When you petition the Tax Court, everything stated as a tax fact requires a citation.

I once knew a tax preparer that said taxes are not an exact science. After inheriting half of his clients after his death, I understood why he said that. He even allowed a deduction for hair cuts for a TV anchor person on Schedule A as a business deduction. He wasn’t trying to evade taxes. If he had knowledge of actual court citations that disallowed deductions for hair cuts by TV anchor people, he would not have taken the deduction. Thus, his naïve state of mind concerning actual citations allowed him to be creative without having the guilt of knowing one way or another whether the deduction could stand up in court.

Being naïve allows one to take a creative tax position that seems logical with a good conscience because one does not have the knowledge that it is in fact wrong. Citations have a way of spoiling a good theory.

What a neat post. So enlightening, and illustrates your point so well, but your kindness and generosity of spirit come through.

[Snaggletooth]

Axiomatic quote

“All income is taxable and no expense is deductible. Any exception to this rule requires a citation.” – Bees Knees, 2013.

The thinking behind this quote and the verbage in your post makes a great case for boxing in with cites and leaving no wiggle room. However, in like fashion a more liberal statement could easily be as follows:

"A business may deduct ordinary and necessary expenses. Any attempt to disallow such a deduction requires a citation" - Snag, 2013.

...thus to the extent allowable, creativity may be reborn. I will give your position credit for the implication of "ignorance is bliss", therefore if I can be lazy enough to not research and find a cite, then I have a free ticket. I support your position in rejecting that kind of naivity.

In practice, application of either of the above standards becomes subjective in many situations. Most of the time it is obvious to us what constitutes "income" but in many cases the AICPA has highly precise and situational definitions of what "income" really is. And the cites? Hardly rock-ribbed and definitive with such things as "temporary regulations" that last for decades, and their failure to define safe harbors for fear of establishing precedents. And too many issues never really make it into court and provide us with a court decision.

All tax law is statutory, with very little influence of the "common law". This means such principles as "right vs. wrong", "fairness", etc. are cast to the wind in the face of statutory code and regulation. This is in part because it is impossible to write the law to anticipate every situation for which can be foreseen to apply.

I will take my place on the aforementioned spectrum probably just to the left of center and won't back off a creative application if the cites are silent. From Bees' conversation I should be a little more prompted to LOOK earnestly for a cite instead of proceding out of ignorance.

[erchess]

Wiggle Room

I don't see any wiggle room on the question of what income is taxable. As far as deductions go I see some wiggle room. For example consider the ordinary and necessary test for business expenses of an entity or a SP. I think most of us will take anything that seems reasonably helpful as long as the fact of the expense is documented. On the other hand the business expenses of an employee are more tightly restricted. On Sch A there is some room to maneuver as well. Consider the debates we recently had about medical expenses. Or consider the fact that a deductible charitable contribution may be made to a charity which has not received "official" status. Still I don't any more wade into what I perceive as a grey area without asking a question here and or using a research service or going to the actual authorities. Sometimes what I perceive as a grey area may simply be one where rules I do not know about have been established.

[Bees Knees]

"A business may deduct ordinary and necessary expenses. Any attempt to disallow such a deduction requires a citation" - Snag, 2013.

Well, actually you are plagiarizing code section 162(a) which says: “There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business…”

But then, my quote as well is a form of citation plagiarism: “Gross income means all income from whatever source derived…” IRC §61(a).

I understand the desire to be creative. Old timers use to say we represent our clients, not the government. Another saying was “when in doubt, deduct.”

But in this modern day of preparer penalties, due diligence, and ethical standards, the IRS views us as government agents, protecting the public from crazy tax schemes. To be frank, for a couple of hundred dollars in tax preparation fees, I am in no mood to stick my neck on the chopping block taking a questionable position on someone else’s tax return. I would prefer a citation to back up any crazy notation of reducing someone’s tax liability below the obvious.

[New York Enrolled Agent]

"A business may deduct ordinary and necessary expenses. Any attempt to disallow such a deduction requires a citation" - Snag, 2013.

I will take my place on the aforementioned spectrum probably just to the left of center and won't back off a creative application if the cites are silent.

Obviously, not every conceivable deduction may have a specific cite but I would suggest you pay close attention to the almost universal language used in the Tax Court (language often flowing from Suprem Court decisions).

Moreover, deductions are a matter of legislative grace, and the taxpayer bears the burden of proving that he or she is entitled to any deduction claimed. Rule 142(a); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934); Welch v. Helvering, supra. This includes the burden of substantiation. Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), affd. per curiam 540 F.2d 821 (5th Cir. 1976). In addition, section 6001 requires the taxpayer to keep records sufficient to show whether or not the person is liable for tax.

[BHoffman]

Obviously borrowed from the ChEAr$ reference in another thread...

Well, what about it folks? Like most of us, I have come to the board several times for advice and have been told "No, you have no cite to support your position."

In some of these situations I had no cite to support me, but also no cite to DISALLOW me either. It's like if I can't find a cite that allows me to go to the bathroom, then I can't go.

There are two ends of this spectrum - one wants to stifle creative thinking by limiting the activity to what is given a blessing by the cites. The proverbial "box" that stops people from "thinking outside the box." The other end of the spectrum espouses positions which may not be specifically cited, but flies in the face of existing cites and clearly violates their spirit and thought process.

Are all of us somewhere on this spectrum? Tax symposium lecturer Guido van der Hoeven says all of us have a "chicken" factor, meaning all of us have some degree of liberal position but also a limit beyond which we will not go.

Asking for a cite is common among us, and is usually the result of someone shooting from the hip instead of offering authentic information that will resolve the query with authority. In some cases maybe we DO ask for a stinkin' cite when it is unnecessary.

Comments?

OK. I read this thread when it first came out with some interest but no time to reflect. Here's my two cents. Some things separate the men from the boys, so to speak. One of those things is to be able to back up your BS with some authority. Another thought is that we are playing a game. The tax software is the game platform. The client documents are the game pieces. The cites are the rules of the game. Our job is to win the game fair and square. If you don't know the rules, then you aren't playing fair. So, if you are a professional, then you research the cites. You don't necessarily have to throw them around, but you should be prepared to back up your statements with some other authority than "my experience and knowledge". Do the research and offer your peers and your clients the respect they deserve or else risk being known as a hopeless hack with minimal ability to perform to professional standards or offer any reliable advice to others. Any idiot can crank out something that will pass as a tax return. Ask any DIY Turbox user. Therein lies the difference between us and them. That, and we actually read the instructions. Happy tax season Snagglepuss

[Bees Knees]

There have been all kinds of cop shows, medical shows, firefighter shows, etc. on TV over the years. Usually they all have some techno jargon that makes them sound professional.

“One-adam-12, one-adam-12, a 211 is in progress at the corner of 12th and Main. Caution is advised. Code 3…”

I would like to see a TV drama about a tax office. We could go to town with all the techno jargon available to us.

“Mr. Wilkins, a code section 152(d)(2)(C) is hear to see you. He forgot to buy flowers for his code section 32(c)(1)(A)(ii)(III) on their code section 1(a)(1), and now he’s faced with a code section 215(b).”

[taxxcpa]

I would like to see a TV drama about a tax office. We could go to town with all the techno jargon available to us.

“Mr. Wilkins, a code section 152(d)(2)(C) is hear to see you. He forgot to buy flowers for his code section 32(c)(1)(A)(ii)(III) on their code section 1(a)(1), and now he’s faced with a code section 215(b).”

How much does a secret decoder ring cost?

[WhiteOleander]

There have been all kinds of cop shows, medical shows, firefighter shows, etc. on TV over the years. Usually they all have some techno jargon that makes them sound professional.

“One-adam-12, one-adam-12, a 211 is in progress at the corner of 12th and Main. Caution is advised. Code 3…”

I would like to see a TV drama about a tax office. We could go to town with all the techno jargon available to us.

“Mr. Wilkins, a code section 152(d)(2)(C) is hear to see you. He forgot to buy flowers for his code section 32(c)(1)(A)(ii)(III) on their code section 1(a)(1), and now he’s faced with a code section 215(b).”

That made me laugh out loud. How 'bout, "She can't take Sec. 179 because she has a net loss on the Sche C".

[BP.]

I would like to see a TV drama about a tax office. We could go to town with all the techno jargon available to us.

AGI is plummeting! We need to order a 408(A) conversion stat!!