IRS Help

[BOB W]

Jainen> I think you missed the point of the letter> It was to show a long industry precident that these helpers would fall under sect 530 and that they could be considered a sub contractor, not an employee.

By the way, the IRS didn't say they were not deductible, just that Sch A misc was not where such a deduction would go.

If you are on my side, then see if you can find any precident taking a posistion as a statutory employee when the employer hasn't or , maybe not even thought of it.

[jainen]

support your theory

>>It was to show a long industry precident that these helpers would fall under sect 530 and that they could be considered a sub contractor, not an employee.<<

Fine--then proceed to show it forthwith. Give an example. Cite an authority. Without some kind of proof you surely can't expect the auditor to take this seriously. Most college students are under age -- the liquor industry doesn't hire them. It really damages your credibility to say so. And cash under the table besides? THAT'S what you want the auditor to put in the government report about your client? Give me a break!

Anyway, the helpers aren't being audited; the driver is. And the driver filed as an employee with Schedule A expenses. More than once. Now, instead of supporting that position, you want to acknowledge that it was wrong to claim such expenses as an employee. If I were the auditor, I would say, "Great--since we agree on that particular point, just sign right here. Then you can give me the amended return for further processing." Your client will be completely compromised.

Maybe there is a good argument for statutory employee. I still don't think this is the right time to make it, and besides you aren't making it very well. You have to admit an inexperienced auditor might not be familiar with that category and could be all over the map about a Schedule C with no income. An experienced auditor would be even less impressed by your attempt to completely change your tax theory in the middle of an examination. Generally in an audit you want to close down as many issues as possible, not open up new ones that the auditor hasn't even been looking at.

One thing for sure, you can't win based only on theory and quotes. Jeez, at least find something in the actual code or regs to talk about. Even then, you must DOCUMENT the facts and circumstances that support your theory.

[George Boutwell]

In their note back, they are saying that labor cannot be deducted on schedule A Misc.

Hmm, let's see. Isn't that where my clients deduct what they pay me to do their tax returns? I guess it's not labor, it's just fun.

This whole thread illustrates what happens when you try to respond logically to an absurd IRS position. In such cases, a taxpayer should use the Eleven-Word Solution. "Write it up as unagreed and we will go to Appeals."

[veritas]

From what I have read

The IRS has not disallowed expenses paid to "lumpers" but has always attacked the independent status of these individuals. They may want to make a case out of this because they don't like the industry practice.

I still believe it is a deductible expense since it is ordinary and necessary. But I can imagine the agent will try to bully by going after employment taxes.

[Gene V]

Here is a paragraph from the Summit Accounting Group on Truck Driver Expenses:

Other Items

You may have an assistant who helps to load and unload the truck. The IRS classifies
these helpers as employees since they are under your control. A question often arises
as to who employs these helpers. If you are an independent owner, you are considered the employer. If you are an employee, the answer depends on the circumstances of the situation. If the company authorizes you to be a hiring agent, the helper is an employee of the trucking company. If the turcking company has made no authorization, then you are the employer and are responsible for reporting wages, withholding, FICA, and Medicare, plus issuing a W-2 form to the helper.

[OldJack]

5th grader

As a follow up to what Jainen has said I would add that your letter says too much. Get to the point in as few words as possible with cites or reasons supporting your position. Clearly state what you are requesting the auditor or IRS to do. The more you say the more troubles you can bring out against your position. Detail description of your position is better stated in person. Ideally your letter should not be more than 2 paragraphs. Remember, most employees of the IRS are not smarter than a 5th grader!

[outwest]

Old jack you are too hard on the IRS employees..

I always write so that a SIXTH grader would understand ...

[BOB W]

I thought Sect 530 was a cite? That area was a word for word reprint and the last part of it was from IRS audit manual. So I don't know what J is talking about.

It accomplished what I wanted, acceptance as a "non employee status" for the helper. My only problem is pushing to have it deductible as a Sched A Misc expense, since the IRS is saying it can't be deducted in Sched A Misc.

[New York Enrolled Agent]

Section 530 as used in employment issues is not in the IRC. It refers to §530 of the Revenue Act of 1978, Public Law 95-600. This section MAY give relief to classifying a worker as an independent contractor v. an employee.

[jainen]

think like a bureaucrat

>>My only problem is pushing to have it deductible as a Sched A Misc expense<<

Why you don't deal directly with this, since you recognize that it is the only audit issue? Finding another form on which to deduct the same expense is not a direct approach. Although it can sometimes work, there is a great risk because you have to agree with the auditor before you can do it. Even a fifth grader could take advantage of that awkward maneuver.

Out on the front line of the examination division, they don't much care about tax theory. What they want to do is go to lunch! That old crone is finally retiring, and the office manager is paying for the Chinese buffet out of petty cash. They can't do that while some taxpayer's rep is quoting employment law and using big words like "statutory." All they want to do is photocopy a logbook written with more than one pen.

You have to think like a bureaucrat.

[BOB W]

I appreciate all your responses and will take everyones opinion into consideration. It IS great to get so many opinions> Thanks.

[BOB W]

In reading Schedule A Misc Line 22, it says that Clerical Help is a deductible expense. If clerical expense is deductible Labor Expense should also be deductible due to the nature of the work.

I think this auditor is just lazy and didn't appreciate my "in the face letter". But that should not matter> right is right and I will followup.

[jainen]

what was being audited

>>I think this auditor is just lazy and didn't appreciate my "in the face letter". But that should not matter> right is right<<

I think you have a fundamental misunderstanding of how audits work. There is no such thing as "right." The taxpayer has to document his position, that's all. It wasn't the auditor who was lazy, but your client who didn't maintain adequate records and yourself who didn't develop and present alternate records.

When the auditor said it couldn't be deducted on Schedule A, you assumed that only meant that it should be deducted somewhere else. Not so. She said Schedule A because that's what was being audited.