My client has Schedule C and a little Schedule D income only. Could I get your opinions as to where the fees should go for his offer in compromise? I have listed them on Sch A but the financial/legal firm handling the OIC wants me to put them on Sch C?
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Accounting fees that relate directly to a business, such as Schedule C, F, or E, should go on that schedule as legal/professional fees. Accounting fees that are personal (investments, etc.) should go on Schedule A Misc 2%. I look at the detail on the prior year's invoice to see what a client paid for tax prep for Schedule C and related forms & schedules, for instance. If all the bookkeeping is for the business, Schedule C. -
My take as well and I cannot justify that these fees are directly related to the business. The OIC firm is taking the position that he would not have to file at all if it weren't for his business.Comment
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Pub 529 "You can deduct expenses of resolving tax issues relating to profit or loss from business (Schedule C or C-EZ), rentals or royalties (Schedule E), or farm income and expenses (Schedule F) on the appropriate schedule. You deduct expenses of resolving nonbusiness tax issues on Schedule A (Form 1040 or Form 1040NR)."
I don't see how these are "tax issues related to [the] business". How would paying the OIC fees lead to possibly generating revenue in his business? Whether he had a business or was a wage earner, the expense would be of the same nature. The taxes he's trying to get out of paying are personal."You said it, they'll never know the difference. Come on, we'll paint our way out!" - Moe Howard
"That's enough! When you didn't know what you were talking about, you really had something! [to Curly]" -Moe HowardComment
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Perhaps if the OIC firm regarded the Schedule C as the equivalent of a W-2 form or K-1 form to an employee or partner, they might get a clearer picture of where the OIC fees should be deducted. (Schedule A)"The only function of economic forecasting is to make astrology look respectful" - John Kenneth GalbraithComment
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Thank you. I feel better about my refusal but was hoping for the client's sake he could use the fees. They are considerable.Comment
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They probably don't know anything. Might as well ask, why isn't the OIC firm also preparing the return?
How could payment of personal income taxes ever be considered an ordinary and necessary Sched C business expense? Certainly, the state income taxes and the self employment tax are not considered business related, and are not deducted on Schedule C. Why would any expenses related to paying income taxes somehow become business related, when the taxes themselves clearly are not? It's a ridiculous position to take."You said it, they'll never know the difference. Come on, we'll paint our way out!" - Moe Howard
"That's enough! When you didn't know what you were talking about, you really had something! [to Curly]" -Moe HowardComment
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As far as "They probably don't know anything." It is an amazing reply but not surprising. The firm was involved, handled the issue and got paid and know more of the facts then presented in this post. Not to disappoint you but the firm would know more of the issue.
As far as "....it's a ridiculous position to take" - did not read anyone taking a position. So think your comment has no position.
Again, suggestion by LION is the smartest reply post.Last edited by TAXNJ; 06-25-2016, 11:29 AM.Always cite your source for support to defend your opinionComment
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Try reading again. OP said, "The OIC firm is taking the position that he would not have to file at all if it weren't for his business. "
Wrong - he would not have to file an OIC at all if he just paid the taxes he owes. It has nothing to do with his business, anymore than it would have to do with wage income for a wage earner or pass through income for a Schedule K-1 recipient. (As another respondent indicated).
If taxpayer took out a personal loan to pay his income taxes, would you think the interest paid would be a business deduction on Schedule C?
Lion's post didn't say anything about fees for filing an OIC, not sure why you think it is so relevant."You said it, they'll never know the difference. Come on, we'll paint our way out!" - Moe Howard
"That's enough! When you didn't know what you were talking about, you really had something! [to Curly]" -Moe HowardComment
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Deduct the Accounting Fees
...as a business expense. The OIC firm says he wouldn't have to file except for the business.
This is categorically not true unless taxpayer does not meet the filing threshold, and with the ACA even THAT is unlikely nowadays. Virtually ALL taxpayers have to file, business or not.
However, he would not have to pay accounting fees were it not for the business. The deduction for accounting fees should be a 100% line item deduction on the Sch C or E, with no loss of deductibility because of Sch A 2% robbery.
I agree with OIC firm that it should be deducted. Also don't know why they are not positioning the taxpayer to do so under their own service unless this is for prior years' accounting work that you did.Comment
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The OP used the term "accounting fees", but where is the accounting? An OIC is only "accounting" in the same sense that filling out an application for a mortgage loan is "accounting".
Are you saying he wouldn't have to file an OIC if not for the business? That's like saying someone else wouldn't have to file an OIC if not for their job. There is no direct connection, or if you think there is, please give an example of a type business that is required to file an OIC as an ordinary and necessary business activity. Yes, the OIC prep fee should be deducted, on Schedule A where it belongs."You said it, they'll never know the difference. Come on, we'll paint our way out!" - Moe Howard
"That's enough! When you didn't know what you were talking about, you really had something! [to Curly]" -Moe HowardComment
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Well stated.
It is interesting as you state "don't know why they are not positioning the taxpayer to do so under their own service unless this is for prior years' accounting work that you did". Think there might be more info related to the Original Post not shared/posted.Always cite your source for support to defend your opinionComment
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Unless the OIC is compromising taxes directly connected with the "C" such as employment or excise then the fees are for personal income tax and SE tax which are not a result of the "C" only incidental to it. I have successfully made the argument that preparation fees belong only on the "C" since the taxpayer would be able to "Free File" were it not for the "C". IF the compromised taxes include SE, Income and other business only taxes a proration would be acceptable.In other words, a democratic government is the only one in which those who vote for a tax can escape the obligation to pay it.
Alexis de TocquevilleComment
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Would be interesting if the Original Poster gives what the "Firm's" reason for their position - still think there is something missing from the Original Poster. If provided sure would put this post to rest but at the same time the post did provide a number of good and interesting comments and guesses.Last edited by TAXNJ; 06-28-2016, 07:14 AM.Always cite your source for support to defend your opinionComment
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