Race Car Audit

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  • jainen
    Banned
    • Jul 2005
    • 2215

    #16
    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.

    Comment

    • DaveO
      Senior Member
      • Dec 2005
      • 1453

      #17
      I agree with the goal of closing the audit quickly

      Originally posted by jainen
      >>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.
      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 Tocqueville

      Comment

      • jainen
        Banned
        • Jul 2005
        • 2215

        #18
        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!

        Comment

        • DTS
          Senior Member
          • Jun 2005
          • 1852

          #19
          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

          Comment

          • veritas
            Senior Member
            • Dec 2005
            • 3290

            #20
            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.
            Last edited by veritas; 12-13-2006, 08:41 PM.

            Comment

            • New York Enrolled Agent
              Senior Member
              • Nov 2006
              • 1530

              #21
              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

              Comment

              • DaveO
                Senior Member
                • Dec 2005
                • 1453

                #22
                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.
                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 Tocqueville

                Comment

                • Bjorn
                  Senior Member
                  • Jun 2005
                  • 185

                  #23
                  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.

                  Comment

                  • cpadan
                    Senior Member
                    • Feb 2006
                    • 123

                    #24
                    Thanks for the update

                    Thanks posting how it turned out.
                    Dan

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