Audit and Cash Basis Taxpayer Expenses

[S T]

Schedule C Cash Basis Taxpayer – Audit Scenario Tax Year 2014

Revolving charge on Business Credit Line or Visa – Master Card - deduct expense when charged, not when paid? Charges 2013 paid in 2014 - Which year?

Home Depot, Lowe’s, Shell Gas Card , etc Revolving Credit Lines - Deduction for charges in December 2013 - or when paid In January 2014?

Open Account at Major Vendor (no credit card) - say a Lumber Company - Charges in December 2013, but not paid until January 2014?

Which Tax Year to report the expense ?

Anyone have a reference to point to for tax deduction charges versus when paid

Having an issue with the Auditor and would or could affect year 2013, 2014 (audit) and year 2015 which has not been filed!

Thanks

Sandy

[TAXNJ]

Keep in mind the 12 month rule. maybe the link may help as a guideline

http://taxation.lawyers.com/deducting-prepaid-expenses-under-cash-basis-method.html

[ATSMAN]

Keep in mind the 12 month rule. maybe the link may help as a guideline

http://taxation.lawyers.com/deductin...is-method.html

Another link that may be helpful https://www.irs.gov/publications/p33...link1000313238

[TAXNJ]

Something to keep in mind that credit cards balances are considered debt and generally deductible vs.a store charge card, not deductible it until you pay it since they are considered accounts payable.

[TaxGuyBill]

Revolving charge on Business Credit Line or Visa – Master Card - deduct expense when charged, not when paid? Charges 2013 paid in 2014 - Which year?


2013. Vendor was paid through a third-party loan in 2013. Revenue Rulings 78-38 and 78-39.

http://bradfordtaxinstitute.com/Endnotes/Rev_Rul_78-38.pdf

http://bradfordtaxinstitute.com/Endnotes/Rev_Rul_78-39.pdf

http://scholarlycommons.law.wlu.edu/cgi/viewcontent.cgi?article=3009&context=wlulr

Home Depot, Lowe’s, Shell Gas Card , etc Revolving Credit Lines - Deduction for charges in December 2013 - or when paid In January 2014?

Open Account at Major Vendor (no credit card) - say a Lumber Company - Charges in December 2013, but not paid until January 2014?


2014. Cash basis, the vendor has not received any payment at all until 2014. §1.446-1(c)(1)(i): "Expenditures are to be deducted for the taxable year in which actually made."

https://www.law.cornell.edu/cfr/text/26/1.446-1#c

[TAXNJ]

Might be easier to reference your Tax 101 textbook then all of the references given.

[TaxGuyBill]

Might be easier to reference your Tax 101 textbook then all of the references given.

An auditor is usually not going to accept "my book says ...". They usually want Code, Regulation, Rulings, etc..

[Roland Slugg]

With all the links to outside sources furnished above, you'd never know this forum is provided and supported by TMI. I believe the issue, Sandy, is covered quite well right in your TTB. Have you looked there?

Payment with borrowed funds constitutes payment when the funds are remitted to the payee. "Borrowed funds" includes money borrowed from a bank or any other source. Payment with a credit card also constitutes borrowed funds, as long as the credit card was issued by a separate entity and not the company itself. Thus, business expenses paid using VISA, MasterCard, AMEX, etc. are deductible when the credit card is charged, not when it is later paid. However, charges "paid" on a company's own credit card are not deductible then, as such payments transfer no funds to the vendor. These "revolving" accounts represent accounts payable to the purchaser, and as such are deductible as and when paid. This would include some of those you listed in your OP, such as Shell Oil, Lowes and others.

This can be a bit tricky. Many large companies have arrangements with the credit card issuing banks, such as Chase, Barclays, Citi, etc., and some of the VISA and MasterCard credit cards issued by them also say Shell Oil, Lowes, United Airlines, etc. on them. Payments using these credit cards do transfer funds to the vendor, as the borrowed funds are now payable to the credit card issuer ... i.e. the issuing bank. The retailers' names on such cards are simply marketing.

[TAXNJ]

With all the links to outside sources furnished above, you'd never know this forum is provided and supported by TMI. I believe the issue, Sandy, is covered quite well right in your TTB. Have you looked there?

Payment with borrowed funds constitutes payment when the funds are remitted to the payee. "Borrowed funds" includes money borrowed from a bank or any other source. Payment with a credit card also constitutes borrowed funds, as long as the credit card was issued by a separate entity and not the company itself. Thus, business expenses paid using VISA, MasterCard, AMEX, etc. are deductible when the credit card is charged, not when it is later paid. However, charges "paid" on a company's own credit card are not deductible then, as such payments transfer no funds to the vendor. These "revolving" accounts represent accounts payable to the purchaser, and as such are deductible as and when paid. This would include some of those you listed in your OP, such as Shell Oil, Lowes and others.

This can be a bit tricky. Many large companies have arrangements with the credit card issuing banks, such as Chase, Barclays, Citi, etc., and some of the VISA and MasterCard credit cards issued by them also say Shell Oil, Lowes, United Airlines, etc. on them. Payments using these credit cards do transfer funds to the vendor, as the borrowed funds are now payable to the credit card issuer ... i.e. the issuing bank. The retailers' names on such cards are simply marketing.

Very good points. Also TTB section 8 is a good starting point.

[TAXNJ]

An auditor is usually not going to accept "my book says ...". They usually want Code, Regulation, Rulings, etc..

Most good text books reference code, regulations, rulings. If your "book" did not you might consider getting your money back.