IRS Adjustment

[neallove]

Client audited by the IRS

Rent Sch E Line 22 has a rental loss carry over of $22,656 per the 2006 return.

IRS auditor disallowed $6,000 in expenses on the sch E

The additional tax was computed based on an increase in Income of the $6,000 disallowed. The client paid the additional tax.

It is my understanding that the adjustment should have just reduced the amount on line 22 and the net tax effect would be zero.

Am I correct or do I not understand.

[Matt Sova]

Rental Loss

Was the entire loss carryforward utilized in 2006 or was there a carryforward of at least $6000 in loss to 2007. If there is a loss carryforward > $6,000 then that would be reduced and no tax would be due.