How would you handle this amended return?

[kathyc2]

New client has a Mary Kay business, and I use the term business loosely. 2013 return shows sales of 1,250, COS close to 1,200 and loss of 3K. Previous preparer wrote off entire cell phone bill and 2K miles. Speaking with her, she says she really only sells to family and friends and gives them a 50% discount. According to her, she has been doing this about 10 years and has never shown a profit.

Obviously I told her I'm not going to show a deductible loss for this in 2014.

Previous preparer missing claiming AOC for 2013, and I will be filing an amended to claim 2,200 in credit.

I'm on the fence about what to do w/ 3K schedule C loss. Leave it or also amend to not show? 25% marginal bracket, so it would mean 750 in tax. However, if she would ever to be audited for her "hobby loss", I'm sure she would think if's because of the amended return.

What would you do?

[BHoffman]

Hi Kathy - I would include treating the Mary Kay activities as a hobby in the amended return since it is so very obvious.

You might also consider discussing amending all open years to change the Sch C to a hobby.

[kathyc2]

Yeah, I'm just being grumpy. Preparers that take C losses when it's obviously not engaged in for profit makes me grumpy. What makes me even grumpier is the IRS seems to make no effort to examine the returns even though by their own information they think incorrect losses from these amounts to 30B in lost revenue per year.

Since the amended will be paper filed, I'm going to not carry forward the "loss", give the client the business or hobby info and let them decide to actually mail it in or not.