Due Diligence With Mileage

[Jesse]

Remember too, if he is audited, the first thing the IRS asks for is the employer's reimbursement policy. No policy, or a signed letter stating the employee gets no reimbursement although the car use is required, big adjustment. And 14K of employee biz expenses against 24K in income is a big, big red flag.

So there needs to be a policy by the employer saying that the employee must use his own car and that there is no reimbursement for this use.

I'll re-ask Geekgirldany's question. Local landscaper reimburses employees $300 a month under a nonaccountable plan. It is included it in the W-2 wages, as it should be, however, there is no written plan, only verbal agreement. Does no written policy = no deduction?

[outwest]

Under the scenario you describe..

the employee must now go to form 2106 to account for his employee auto expenses carried to his sch A. The lack of a written employer plan has nothing whatever to do with the deductability of the employee auto expenses. The only issues are the nature, amount and substantiation of the expense.

Note: As we all know, with a 2% itemized deduction, the employee often gets no tax benefit from this sort of arraignment. But if nobody wants to do the paperwork for an accountable plan, that's the way it is.

[Jesse]

the employee must now go to form 2106 to account for his employee auto expenses carried to his sch A. The lack of a written employer plan has nothing whatever to do with the deductability of the employee auto expenses. The only issues are the nature, amount and substantiation of the expense.

Note: As we all know, with a 2% itemized deduction, the employee often gets no tax benefit from this sort of arraignment. But if nobody wants to do the paperwork for an accountable plan, that's the way it is.

This I realize and I do not handle the landscaper's payroll, a couple of the employees are clients. The 2% phases out the majority of expenses but they seem content that something is better than nothing. But if there needs to be a written agreement, there is none, no employee manual, nothing formal with this business, even the W-2's are handwritten. I was starting to sweat a tad bit if the "no written agreement" voids any deduction.

[geekgirldany]

Glad you asked that again Jesse.

Update. I meet with the customer. He said he got reimbursed but he should still get the deduction because they don't pay his gas. I tried to explain the best I could that they were. I mean either I was explaining it very badly or he just did not get it.

I got some insults thrown at me like I am never here, he called and I wasn't here, he left messages and I would not call him back. I was calling him a thief. Totally untrue. If he calls back next year I won't be doing his taxes.

[joanmcq]

This I realize and I do not handle the landscaper's payroll, a couple of the employees are clients. The 2% phases out the majority of expenses but they seem content that something is better than nothing. But if there needs to be a written agreement, there is none, no employee manual, nothing formal with this business, even the W-2's are handwritten. I was starting to sweat a tad bit if the "no written agreement" voids any deduction.

The thing is, with an nonaccountable plan like you are speaking of, you can show there is an auto allowance included in taxable wages. so he is not really reimbursed for his expenses...since it is included in taxable income, he has to do a 2106. if audited, the employer can write a letter on letterhead explaining the policy. I submitted one of these for an outside salesperson who wasn't reimbursed, and there was no problem.

[travis bickle]

Sorry, but

I got some insults thrown at me like I am never here, he called and I wasn't here, he left messages and I would not call him back. I was calling him a thief. Totally untrue. If he calls back next year I won't be doing his taxes.

if I had a potential client act that way, I would bundle up all the appropriate documentation, give it to him and show him the door.

I have enough problems without cultivating aggravation.

"Some people make you smile wherever they go, some make you smile whenever they go."

[Jiggers]

Insulting my intelligence

.
I got some insults thrown at me like I am never here, he called and I wasn't here, he left messages and I would not call him back. I was calling him a thief. Totally untrue. If he calls back next year I won't be doing his taxes.

I wouldn't hesitate one minute. Out the door and hope it doesn't hit him on the way out.

I had a long-time client balk about paying me to represent him during a terrible audit. About half way through he starting giving me "lies" to tell the auditor, and then when he said that my audit fee was not going to be paid, I withdrew from the audit. Lost a very big monthly client. But I survived.

I used to hesitate. But I found out that you live longer without all that headache!

[Lion]

No written plan

He doesn't need a written plan from the employer if he's not getting nontaxable reimbursements under an accountable plan. If he were, then he wouldn't be deducting the expenses because they'd already been reimbursed. He does need some substantiation if he's deducting the expenses, and the employer's backup that the employee will not be reimbursed would be of concern to an auditor.

[geekgirldany]

I don't have an ounce of self doubt on this one. I actually feel very good about the stance I took. I am not going to sit and argue a deduction with a client. I have my position, you don't like it then go to someone else. I really thought he would go and I was very surprise he told me to efile his return. The insults were thrown when he was leaving. I don't think he will come back.

I believe I have been to easy going with people. Not regarding deductions but just in general. They are going to see a change in attitude quickly. Another accountant told me there is a time to be friendly and there is a time to get down to business.

[taxxcpa]

Big mileage deduction

It is possible that he drives an old cheap car and gets 50 miles per gallon, so he may only be out a small percent of what the IRS allows as a mileage allowance.

For your protection, you should get some sort of written explanation from him in which he justifies the high deduction in relation to his income.

Sometimes, if you point out the excessive nature of a deduction, a client will back down. I had a guy claiming huge mileage deductions to visit a rent house in another town. I pointed out that he would have to drive over 100 miles every week to come up with that much mileage. He then decided that 'maybe' he hadn't driven quite that much.

[JohnH]

If he complains about your not being there when he calls, just tell him you're there when it's important for you to be there, and you're not there when it isn't important for you to be there.

Apparently he is choosing to call when it isn't important for you to be there - that's his problem, not yours.

[geekgirldany]

Most customers know they have to leave me a message and I will return their call in the afternoon. I have had about three customers talk about me not being in. Everyone knows I am only in the office during afternoon hours. He just had to throw something at me as he left.

[FEDUKE404]

I use the "movie" observation here

"Run Forrest......run!!"

This guy is trying to jerk you around to create a deduction that is probably unfounded and also unsubstantiated.

If push came to shove, I would say "show me the records" (both expenses and reimbursements), read him the taxpayer riot act, and proceed. Remind him a call from the IRS is probable.

Otherwise this return smells like last week's fish trimmings.

[geekgirldany]

I already had the return finished based on no mileage. That is the return that was filed. I told him no log no deduction. I just had to finally say it like that. I told him to go to someone else if he thought I was wrong. He decided to file the return I prepared.

[BHoffman]

My Job(s)

When confronted with unsubstantiated deductions, I remind the client that my job is to prepare a correct and complete tax return that will keep them out of trouble with the IRS and, at the same time, make sure that they aren't paying one penny in tax than they legally owe.

IMHO: Both those jobs are the #1 priority.