Race Car Audit

[jainen]

Your problem

>>The idea about separating the racing was a good one<<

Your problem is not whether or not I am a nice guy. It's how in the world to get the auditor... I'm starting to repeat myself. Are you seriously planning to tell her, "Oh by the way, there is a completely separate business the client forgot to mention, so we want to amend the return and add a new Schedule C in the middle of this audit, claiming a loss with all these expenses you've already disallowed!"?

What kind of a strategy is that? The auditor's goal is to close the file as quickly as possible. I strongly suggest that should be your goal too.

[DaveO]

I agree with the goal of closing the audit quickly

>>The idea about separating the racing was a good one<<

Your problem is not whether or not I am a nice guy. It's how in the world to get the auditor... I'm starting to repeat myself. Are you seriously planning to tell her, "Oh by the way, there is a completely separate business the client forgot to mention, so we want to amend the return and add a new Schedule C in the middle of this audit, claiming a loss with all these expenses you've already disallowed!"?

What kind of a strategy is that? The auditor's goal is to close the file as quickly as possible. I strongly suggest that should be your goal too.

But by separating the racing income and expense from the the rest of the return I can show that the income exceeds the claimed expense by about $4k. Only 1/2 of the racing expense documented was claimed as advertising. So if he wants to say it's all a hobby and throw it off the return, fine. I'll put the racing income on line 21 and the total expense (up to the income) on schedule "A". There is other items in question that we are ready to concede so he gets his pound of flesh there and we can hopefully close it up.

[jainen]

get your retainer up front

>>put the racing income on line 21 and the total expense (up to the income) on schedule "A"<<

Ahh, good. At least, it will be good if you also follow my advice to get your retainer up front!

[DTS]

Racing

Dave,

I was able to talk to my friend last this morning. He basically has two, separate businesses, one a racing school in another state and the other is sales in CA. The racing is done through the school, not the sales business. He does this to bring in students. They are very successful in that they win most of the races they enter, but little money for the wins, just the trophies for the school showroom.

He did not mention how expenses are written off, but sounds to me like it could be promotion for the school???

Sorry I could not be of more help to you. I was hoping to get you something more definite.

Dennis

[veritas]

The Tax Gap and my 2 bits

One has to wonder what the treasury looses to a bunch of overgrown babies who want the rest of us to subsidize their play time. I wish congress would write a specific code to deal with these guys. Not only do they want to write off all their toys they have an underground economy for support services such as tow truck drivers and mechanics.

While they are at it I wish they would put the kabosh on all the horsey and dog ppl too.

I would suggest at the least that they only allow the losses up to the income earned just like passive activities.

[New York Enrolled Agent]

Dave O

I don't know how close on point this Tax Court case is to your client's situation but you might want to go to the Tax Court website & take a look at the discussion. It does deal with an attempt (unsuccessful) to write off racing expenses as advertising. Not sure how close the facts of the case are to your facts but the read might be worth it.

Hopkins TC Memo 2005-49

[DaveO]

Results of Audit

Thanks again for all the advice. The audit has been closed. The auditor allowed 50% of the race car expense as advertising mainly because there was race car income in excess of that amount. Three other items were adjusted by the difference between the amounts on the return and the amounts I could prove. I'm happy, client's happy previous preparer might get a visit from IRS next year.

[Bjorn]

Race Car

I'd certainly never give the clients the idea not to report all the expenses to show a modest profit on this Race Care Business.

I waterski as a business, It has been nearly 20 years and the only way I get money is from women asking me if I'll put my shirt back on if they give up twenty bucks.

All is fine until the audit comes. Pigs get fat and hogs get butchered.

[cpadan]

Thanks for the update

Thanks posting how it turned out.
Dan