Would you accept a client who answers NO on Sch C Part IV #47a?

[AZ-Tax]

Would you accept a client who answers NO on Sch C Part IV #47a?

[ttbtaxes]

Depends

Yes, I would accept a client who said No only if they did NOT claim vehicle expenses. If they insisted on claiming vehicle expenses and saying no to the question, they'd be out the door in a New York minute.

[taxmandan]

Depends on what your definition of 'written' is. Some people would say no because the evidence is in the database of their computer on a scheduler, not on a piece of paper. Traditional phraseology has become problematic for some of us in the digital age.

[MAMalody]

274(d)(4)

with respect to any listed property (as defined in section 280F(d)(4)), unless the taxpayer substantiates by adequate records or by sufficient evidence corroborating the taxpayer's own statement
(A) the amount of such expense or other item,
(B) the time and place of the travel, entertainment, amusement, recreation, or use of the facility or property, or the date and description of the gift,
(C) the business purpose of the expense or other item, and
(D) the business relationship to the taxpayer of persons entertained, using the facility or property, or receiving the gift. The Secretary may by regulations provide that some or all of the requirements of the preceding sentence shall not apply in the case of an expense which does not exceed an amount prescribed pursuant to such regulations. This subsection shall not apply to any qualified nonpersonal use vehicle (as defined in subsection (i)).

Technically, there is no requirement for a written record, practically, I don't see how you can have a figure without some type of record.

[FEDUKE404]

Not an insurmountable problem

Question 47a only refers to the matter of having vehicle records. Question 47b separately applies to "written."

While certainly the absence of such records could present problems, and I would fully inform the client of such and advise of potential audit risks, I don't think I would necessarily slam the door in the client's face and/or refuse to prepare the return. After all, those IRS questions ARE there for a purpose, one would assume.

I can foresee a (first year) client who was simply unaware of the rules, but who knows for a fact he traveled from point A to point B twice a week. Or a newspaper carrier with a regular route. Or a consultant who drove a few hours to attend a seminar at a university. Many other similar situations could easily exist.

I'm sure some will say I would not be preparing a "proper" return, or even worse. So be it.

(Actually, for such events I do have this tiny red button underneath my desk, and whenever I push it a SWAT team from the IRS swoops down...unless they are busy dealing with the Obamacare derelicts...and carries the offender off to the nearest federal prison. The worst of the culprits may be eventually dispatched, and spend eternity in the presence of 40 non-virgin biker babes.)

Oh well....back to work!

FE

[AZ-Tax]

Minister disallowed mileage for not including address' in his log

I don't know exactly where I read this but I don't believe it was this board. What I recall a Minister was audited and was disallowed his mileage expense due to not having any address' in addition to his date and mileage for each trip. I recall a speaker at a tax seminar years ago told a story about a taxpayer who was audited and told the IRS he left his mileage log at home. The taxpayer went home and created his mileage log on some kind of paper that had a date imprinted within the paper by the Manf itself and the date was 2 years after the tax year in question.

Actually I am surprised how many preparers on this board would take on such a client.

[Gary2]

Does Rev. Ruling 56-407 influence anyones opinion? See also the second question at http://www.eitc.irs.gov/Tax-Preparer...it/faqs/income .

[Roberts]

Why would you NOT accept such a client?

Answering "NO" is not a crime or indicative of any illegal or negative act on their part.

[MAJ]

The Digital Age... Where EVERYTHING is available.

Honestly, I would take the client for the first year with some additional information.
Do they have EZPass (or similar) - that's a great way to document travel (at least part of it).
Another simple answer is create a declaration letter and have it on hand. This letter would dictate that you informed the client of the requirement and provided specific examples of what/how to do it (put examples on page as well - have them sign it). That alone gets people attention and pushes the severity of the matter. Mileage is a GREAT expense and tool. Something that MUST be done right for most clients.
Oh and trying to get my landscapers to separate their vehicle gas and equipment gas is a different item all together!! UGH! x2

Landscapers, electricians other blue collar travelers have a semi-log by the fact that they invoice (should) have an address and date on it.
It would not be hard to create a log based on that and maps.google.com. Check images at banks also provide an address and date of payment to back up the work. Creating the log can be done after the fact but it's alot of work at that point. My reference to the calendar (below) makes life much easier.

I try very hard to steer my clients in the right direction. Saying NO to that question does not harm me. It harms them. Like any other line item the proof is required at the time of audit. I try to sell a bullet-proof return. Every line item has a document, list or notation that if, when asked is available. I scan every document these days. I offer a full return with all documents to my clients on a CD for $15. If I don't print the return the price is $10 (drag and drop client to CD Drive). Includes all years I've prepared their taxes.

I tell my clients to get a calendar (free Halmark) and put it in the glove box. When you get gas, write down the amount, odometer reading, tripometer and where you are going that day. Once you get in the habit it's hard to break. Here in NJ we are not supposed to pump our own gas (we're too stupid I think) so what else can you do? Oh! Update the calendar. I have them from 1998 when my Honda was purchased. It cost $9.25 to fill the tank that day. Same tank takes $40 these days? Ugh!

Wait - Next your going to tell me NONE of your clients make up charitable figures either!? That's a comedy all in itself.
How much did I do last year? I say, I don't know - what does that have to do with this year? Churches offer statements - Get one!
WIth the digital age web pages also offer invoice copies, etc. I have every one - download to excel and/or print each invoice and save the PDF.
It would be nice if these sites offered a PRINT ALL button - then save to PDF. Maybe I will suggest that to TheTaxBOOK, Staples, Best Buy, NewEgg.com and other sites I deal with. I cannot find a way to bring up my purchases and invoices here at the TaxBook - You know - the Tax Preparation web site!?? LOL..


Happy Travels....

[Bees Knees]

I answer no to that question all the time. If its true, its true. There is no law that requires tax return preparers to refuse to claim a deduction for a client absent written records. If the client wants to take his/her chances with getting audited for lack of written records, that's up to the client to decide, not us.

[JohnH]

Good answer, Bees. Once again this conversation illustrates how IRS has bluffed tax preparers into acting as de facto auditors in certain situations.

[Bees Knees]

I remember years ago a client coming in for his usual tax interview, and tells me he was audited the previous summer (never told me he was getting audited at the time). He had to pay an additional $5,000 or so because the auditor disallowed deductions for cash expenses with only receipts to substantiate the deductions. The auditor informed my client that anyone can pick up a receipt off the ground. You need a cancelled check along with that receipt to substantiate the deduction. Thus, according to this auditor, you cannot use cash to pay a business expense.

This is nine months after the fact that I am first learning about this news. The case was closed and my client had already signed the closing agreement and paid the IRS. I wasn't going to open up a can of worms and tell my client he just got screwed. I simply said next time tell me when you get audited and before signing anything, as I might be able to help save you some money.

[ttbtaxes]

AZ-Tax's question was not whether we'd prepare a return if the client said his records weren't written. AZ-Tax's question is this....would you prepare a client's return if he told you he had no evidence to support the vehicle expenses.

Reg. 1.274-5A contains the substantiation requirements which clearly state that NO deduction shall be allowed unless an expense enumerated in Section 274(d) is substantiated. Reg. 1.274-5A(c)(3) does allow for substantiation by other sufficient evidence.

With that in mind, if the client says, "I have no evidence whatsoever for my auto expenses.", that client by definition can't meet the substantiation requirements. If the substantiation requirements are not met then no deduction is allowable.

Circular 230, §10.34(a)(1)(i)(A) states that a tax preparer can not sign a tax return or claim for refund that the practitioner knows or reasonably should know
contains a position that —

(A) Lacks a reasonable basis

If the client tells us he has no evidence, period, how are we are not violating §10.34(a)(1)(i)(A) if we claim a vehicle deduction?

[Bees Knees]

If the client tells us he has no evidence, period, how are we are not violating §10.34(a)(1)(i)(A) if we claim a vehicle deduction?

There is a difference between taking a deduction for an expense that was incurred with no proof, and taking a deduction for an expense you believe the taxpayer did not pay. If the taxpayer tells me he drove his vehicle 80% of the time for business but did not keep a log, he has no evidence that he drove those miles, period. Yet, I might believe he drove them and allow him to claim those miles under the assumption that if he gets audited, I can make a pretty good case as to why he is entitled to deduct an expense. For one thing, if he gets audited, I could help the client reconstruct his records and come up with several court citations that allowed such re-constructed records, assuming they are based upon reasonable estimates. To me, that is a reasonable basis to claim the deduction, despite the fact that at the time I prepared the tax return, the client had no evidence to prove the deduction.

On the other hand, if I have a client pulling numbers off the ceiling and he seems like a shady character and I have reason to dis-trust what he claims, I might conclude he has no reasonable basis for taking the deduction and refuse to do the return, per Circular 230 rules which requires us to have a reasonable basis for doing what we do.

I've even had auditors tell me they will allow 20% of gross receipts as a deduction with no proof, just to close the case. Explain to me, again, why I should tell a client to get lost with no records when IRS auditors tell me stuff like this?

[ttbtaxes]

I am replying to the literal facts of AZ-Tax's question. The client said I have no substantiation, period. End of story.

Now, if you want to expand upon the facts and take the position that there is always evidence if you drill deeply enough, so be it.

You could be in a tough position in an IRS audit if you have nothing to show the auditor for an auto expense deduction taken and your client sharply reminds you he said he had NO substantiation and he's not taking the fall for this. Now, you're between a rock and a hard place. Clients, even the best of them, are known to throw us under the bus.

Every Schedule C client I have is required to sign a letter of representation each year and one item in that letter is that they have advised me they can satisfy the rules of Section 274(d) which has been explained to them by me. And I do tell them that there is no deduction without substantiation.

I am not going to be the last one standing when the music stops.