8275 Poll

[Black Bart]

New York Enrolled Agent posted a link under Jiggers' thread ("Anyone concerned with Form 8275 & Disclosure?") which brought up a letter from the president of NAEA to government tax authorities protesting the "chilling effect" the form would have on tax preparers. She gave this example in the letter:

"For example, when preparing a Schedule C return for a small business owner, many, if not most, practitioners have not managed the business' bookkeeping. What if the taxpayer does not produce mileage logs? The paid preparer will submit a form 8275-R (Regulation Disclosure Statement, enclosed)...IRS will be swimming in Forms 8275-R. This state of affairs neither enhances tax administration nor lowers taxpayer burden."

I have many clients taking mileage deductions and the great majority of them do not keep mileage logs. I suspect that many of my colleagues' clients do the same.

So...my question is -- how many of you are going to send in the 8275-R with every return claiming mileage that isn't backed up by a log?

[Golden Rocket]

Deductible Mileage

Bart I answered the poll "no" because I don't require a log for a taxpayer to deduct mileage. Many of you may think I live dangerously.

However, I also don't believe I would let someone deduct ANY mileage that is "more likely than not" unsupportable by the facts and circumstances.

For example, I have a baseball coach who has some 70 venues per year, counting games, scrimmages, practices, etc. and it is typical that 40 of them are out-of-town. As supporting evidence, I keep the names of all 40 towns, special meetings, etc. and even extra driving after school if significant.

Last year he drove his van around 26,000 miles and we added up 7500 miles or thereabouts in the fashion described above. I'm sure if he went to the trouble to keep a contemporary log, he would have logged maybe 8500 miles or more. But we only deducted 7500 miles, and he knows he left some miles on the table.

[DonPriebe]

Mileage is a poor example

because the Schedule C already has check boxes for "do you have evidence" and "is the evidence written" So you have already disclosed the lack of written backup.

How about a Schedule C showing a loss every year for xxx years. Do you disclose that you question the profit motive?

[Bees Knees]

A mileage log is not required to deduct mileage. The IRS tried to impose that years ago back in the early 1980s and after public outcry abandoned the requirement. The questions on Schedule C may increase the chance for audit by increasing the computer DIF score, but if you answer no to the written log, no rule has been broken, and you are not automatically audited. I answer no to that question all the time for clients who say they didn't keep a written log, and I have yet to have a client audited over the issue.

[Jiggers]

Black Bart, Thanks for poll

Thanks for posting the poll. I can never figure out how to do that!

I doubt if I will complete the 8275 for failure to have a mileage log, as long as the client signs my form that he can substantiate the business mileage/use.

I will continue to C*M*A with more information from my clients. However, I think my engagement letter that clients sign before I do the return, the mileage/business use statement, and the cover letter that I attach to all returns does C*M*A.

Where warranted, I do include a statement in my cover letters that this return continues to show a loss on C, E, or F, and that this return may be selected for audit because of that and that the taxpayer must be ready to prove a profit motive and to substantiate the loss.

[Black Bart]

A poor example it may be

because the Schedule C already has check boxes for "do you have evidence" and "is the evidence written" So you have already disclosed the lack of written backup. How about a Schedule C showing a loss every year for xxx years. Do you disclose that you question the profit motive?

and the checkboxes are good points (I had not thought of that), but a running loss doesn't seem much better to me -- if a C loses money X after X after X and then XXX on and on, then who wouldn't question the profit motive of a fondness for continual losses? And assuming I do, what could I possibly say about that in a disclosure letter? To cover myself I'd have to state (in more tactful language) something to the effect of "Dear IRS: I'm preparing this guy's return, but I seriously doubt that he's in it for the money." To cover him, say...what?

But anyway, I've got lots more undocumented mileage clients than loss carryforwards and I wanted to know how to correctly treat the returns of a large part of my clientele. I had not heard anything about sending 8275s with them until I saw the letter which doesn't explain why, but indicates that NAEA is going to do it. I wanted to know how many would send them (I'm not), if IRS required it, and/or if it's just a policy that NAEA decided to follow.

[Jiggers]

Mileage Logs

I have had clients who died during the tax year, or after the tax year ended, and the surviving spouse or executor had no clue as to mileage logs or business use.

I have attached statements indicating that the business use or the mileage is just estimated and that is because the taxpayer died.

I have never received any question from the IRS regarding this statement.

[New York Enrolled Agent]

Bart

Two comments: #1 there was a typo in the letter - should have read Form 8275 (delete the R). Form 8275-R is a disclosure going against an existing Treasury regulation - very heavy duty. Form 8275 is a more genial disclosure but the kind that tax practitioners might use. I just point out this typo in the spirit of FULL DISCLOSURE. It does not change the sense of the letter.

#2 I don't think NAEA is advocating any special policy. I believe the beginning of the relevant paragraph suggested that practitioners MIGHT overreact and flood the IRS with these Forms. Remember, when C230 was changed to include the covered opinions and many practitioners added the "penalty disclaimer" to all their emails. I think that was the point of that paragraph.

IMO, the greater problem is not in preparing returns but the inherent conflict of interest that can develop between the practitioner and the taxpayer. Under §6694, the practitioner has the MLTN standard to avoid a penalty. Under §6662, the taxpayer only has the substantial authority standard to avoid a penalty for a substantial understatement. Since MLTN is greater than 50% and most commentators peg substantial authority at about 40%, you can see a problem. Who will the practitioner be more concerned about? That is why both NAEA & AICPA are recommending that the substantial authority standard be used for both taxpayers and practitioners.

[Golden Rocket]

Good Poll

Perhaps the auto mileage may not be the best example, but it doesn't really change the impact of Bart's poll. Are we going to respond to commonly-encountered MLTN situations with an 8275? I think the overwhelming answer is "no" and the impact of this lends to a very strained construction of our ethical responsibilities.

I can't really imagine the NAEA writing a letter stating that their membership is not going to comply. I'm not wild about political correctness either, but that would be the heighth of stupidity. Regardless of what is meant in their letter, I think it's obvious that the "rank and file" of EAs are very reluctant. I think maybe that's what this poll is all about.

Bottom line with me -- if I run into a deduction that is simply not supportable, I simply shouldn't deduct it. I won't respond by deducting it and then painting a bulls-eye on my client's return by attaching an 8275.