Anyone concerned with Form 8275 & Disclosure?

[Jiggers]

Is anyone concerned with the Form 8275, Disclosure, and the stricter guidelines for positions on tax returns?

http://webboard.naea.org:8070/~NAEA/upload/CCH.pdf

Check this out.

You should be!

[gailtaxed]

Yes I am concerned

I would like to access the link you posted, but my log-in for NAEA doesn't work, and I don't see any way to log in as guest, and if I try New, I get a message that this is a closed board and new members are not being accepted. Can you possibly copy the information to this board? I would like to read it.

[JAinNC]

Gail, Gald to see you on this message board.

I think you will like it.

Jeannie

Sorry I meant Glad to see you

[John of PA]

The "Please Audit Me" form

Form 8275........????? Oh........you mean the "Please Audit Me" form. Yes.....I think I've heard of it but never seen one.

[New York Enrolled Agent]

Gail

Try this site:

http://www.naea.org/MemberPortal/Advocacy/Comments/letter_aug_6_2007.htm

[gailtaxed]

Thanks,

I read that letter yesterday when I could not get the link listed. I am still interested in further discussions of this, as I am starting to feel like the IRS regulations are trying to make me an auditor for them rather than an advocate for my clients and I DO NOT LIKE THAT! Am I the only one feeling that way?

[John of PA]

They are

Yes they are making us the auditors and giving us more and more work to do for them. I agree. We have to draw a line here or limit this to some exent.

[Luis Mopeo]

It's been going on for a long time. Look at the "realistic possibility" standard for preparers. How many lawyers would be out of business if they had to adhere to a "realisitic possibility (one in three) that the position would be sustained on its merits."

How many preparers do you know who are afraid to put anything on a return that might raise the eyebrow of a revenue agent? "You can't deduct that. An auditor would throw it out." Not a discussion of whether it's deductible according to law, but whether there would be a chance of having it disallowed. After all, we want to make sure we make all the revenue agents happy.

It is an adversarial relationship we have with the IRS. The IRS understands it, but many if not most tax professionals don't. It's no different than a defense attorney who spends all his time worrying about making the prosecutor happy.

Alas, I think so many have fallen into the trap, it's too late to get out.

[Bees Knees]

Regulations generally are the result of a response to abuse. Because there are a few tax professionals out there who have abused the rules, the government makes all of us pay through stricter regulation.

[erchess]

Hmmmmm

Luis writes: "How many preparers do you know who are afraid to put anything on a return that might raise the eyebrow of a revenue agent? 'You can't deduct that. An auditor would throw it out.' Not a discussion of whether it's deductible according to law, but whether there would be a chance of having it disallowed. After all, we want to make sure we make all the revenue agents happy."

Part of the problem I have is that few of my clients understand that audits are part of the process. I don't know how many times I have had clients at preparation time urge me to be careful not to get them audited.

Also given the complexity of our tax laws and taxation system and the differing levels of knowledge among tax professionals, it is not surprising that we would differ among ourselves as to whether a deduction meets the realistic possibility standard.

As for the realistic possibility standard, I wish lawyers did have to adhere to it but I won't go further because this is not a forum for discussion of legal reforms.

[solomon]

Does not this still apply

(c) Relying on information furnished by clients. A practitioner advising a client to take a position on a tax return, or preparing or signing a tax return as a preparer, generally may rely in good faith without verification upon information furnished by the
client. The practitioner may not, however, ignore the implications of information furnished to, or actually known by, the practitioner, and must make reasonable inquiries if the information as furnished appears to be incorrect, inconsistent with an important fact or another factual assumption, or incomplete.

From Cir 230.

[Luis Mopeo]

Part of the problem I have is that few of my clients understand that audits are part of the process. I don't know how many times I have had clients at preparation time urge me to be careful not to get them audited.

It's very much like a financial advisor determining the level of risk tolerance. Absolutely, if your client expresses a desire to have an audit proof return, your proper course of action is to take a conservative position and to avoid anything that may raise a flag. If you have a client who's a test pilot and a stunt man, and who would love the thrill of being audited, and demands that you take every aggressive position you possibly can, you take aggressive positions (obviously in keeping with your professional, ethical, and personal standards).

The question lies in what the tax professional will recommend. The client is looking for guidance. The difference is between the tax professional who says "No, you can't take that deduction," and the one who says "Go for it. It might be disallowed on audit, but maybe not."

Of course, in order to see a distinction in the above positions, one must acknowledge the existence of gray areas. Some tax professionals don't believe in gray areas. I believe those were the first people brainwashed.

Don't get me wrong. I'm not talking about claiming the cost of an exotic bird and calling it "Aerial Surveillance." But what about a bait shop owner who goes on a fishing trip?

Oh, no. An auditor would throw that out.

[erchess]

I will take that bait

Luis writes: "Don't get me wrong. I'm not talking about claiming the cost of an exotic bird and calling it 'Aerial Surveillance.' But what about a bait shop owner who goes on a fishing trip?"

I will deduct it if the fishing trip if there is some business purpose I can see. For example: if the trip is part of an ongoing experiment (with records) of results with different baits or different methods of fishing the same baits, perhaps factoring in fishing conditions; or if he is catching nice catches and putting up pictures or trophies where potential or actual customers see them; then the business purpose is easy to see. If the argument is simply that the bait shop owner needs to be known as an avid fisher, I would consider that it is more iffy but I think it does satisfy the realistic possibility standard but perhaps not the more likely than not standard. We are in a gray area here and if there is an audit the outcome will hinge on record keeping by the client and persuasive argument from the facts by the tax professional. (At least I don't think Tax Law would be in dispute.)

[Bees Knees]

I will deduct it if the fishing trip if there is some business purpose I can see. For example: if the trip is part of an ongoing experiment (with records) of results with different baits or different methods of fishing the same baits, perhaps factoring in fishing conditions; or if he is catching nice catches and putting up pictures or trophies where potential or actual customers see them; then the business purpose is easy to see. If the argument is simply that the bait shop owner needs to be known as an avid fisher, I would consider that it is more iffy but I think it does satisfy the realistic possibility standard but perhaps not the more likely than not standard. We are in a gray area here and if there is an audit the outcome will hinge on record keeping by the client and persuasive argument from the facts by the tax professional. (At least I don't think Tax Law would be in dispute.)

How about if the bait shop owner has a short meeting at the beginning of the trip with employees before jumping in the boats, and hints employees really ought to come along. Would that make it deductible?

In Townsend Industries, Inc., Eighth Circuit Court of Appeals, September 15, 2003, the Court of Appeals reversed lower court decisions that had determined that the value of a company fishing trip to Canada had to be added to employee wages.

The court noted:

“What these many statutes and regulations boil down to is a requirement that Townsend prove that its fishing trips were reasonable and necessary business expenses that were directly related to, or associated with, the active conduct of Townsend's business. Further, Townsend must demonstrate its business purpose by showing: that it had more than a general expectation of deriving some income or other trade or business benefit from the trip; that its employees actively engaged in business meetings, negotiations, discussions, or other bona fide business transactions; and that the principal character of the combined business and entertainment was the active conduct of Townsend's trade or business.”

“The District Court determined that Townsend failed to establish a business purpose and ruled in favor of the Government. The District Court first determined that the "fishing trips were not an ordinary and necessary business expense in light of the lax attendance policy for the trip, and the disconnect between the sales meeting and the fishing trip." Order at 7 (Aug. 21, 2002). Notwithstanding Townsend's unusual, inclusive business philosophy, the District Court determined that there was only a brief business meeting held during each of the trips and that it could not say that "a voluntary, company-wide, all-expense-paid, employer-sponsored fishing trip with one brief business meeting [was] an ordinary and necessary business expense."

In disagreeing with the District Court, the Court of Appeals said:

“In the first place, we cannot agree that District Court's conclusion that the voluntary nature of the trips rendered them an undeductible business expense. Although the trips were voluntary, nearly all of the Townsend employees who testified felt an obligation to attend and some felt that it was part of their job. Moreover, Robert Townsend, the owner, testified that while he felt it would be antithetical to his business philosophy to make the trips mandatory, he and other senior management "definitely encourage" employees to attend and that "[w]hat we want to do is to get them to go, and we do lean on them."

So there you have it. As the tax preparer, would you simply say a company fishing trip to Canada is non-deductible? Of that the value must be added to employee wages if paid by the employer?

Or would you tell your client to pressure everyone into going, hold a 5 minute business philosophy meeting every morning before jumping in the boats, and call it a necessary business expense?

Not many things are black and white in this business.

[Golden Rocket]

What To Do

Most of us identify wholeheartedly with the NAEA letter written to the IRS. But we don't really have lobbyists as most industries do.

I've looked at Black Bart's poll. So far, the score is 10-3 in favor of not blowing the whistle with an 8275. Will mass disobedience of the regulations prevail? Normally I would say not, but the IRS is trying to make auditors out of us, and we should not have to be judge and jury.

Before I turned in an 8275 on a client for not keeping a mileage log, I would turn in one on some guy with a $10,000 W-2, and six social security numbers for what he says are his six children that he is claiming to support. After helping out a friend last winter in a storefront tax shop, I would say more than 50% of his EIC crowd falls outside the "more likely than not" criteria. If we all did this, we're talking literally MILLIONS of 8275's. You think for a minute the IRS is ready for this?

I've found out long ago that the best way to get rid of a ridiculous law or regulation is to try and enforce it.