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BK-CPA
BK-CPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 793
Experience:  Owner of a CPA firm
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I have a client who had a gift shop (Schedule C). Unknown

Customer Question

I have a client who had a gift shop (Schedule C). Unknown to me and everyone, she was suffering from dimentia and today is in a home. This info is only for background. After many notifications, the IRS redid her 2005 and 2006 tax returns, disallowing $36K in rent for her location and all cost of goods, resulting in a tax lien on her home. I have since been retained by her representatives (since I prepared 2005 and 2006 returns) to try to resolve the almost $70K in tax liens on her home which is being sold. I have a transcript of the IRS calculations showing their calculations. Also, since 2005 she has been supporting a losing business with $250K reverse mortgage money.

My question is (which it is impossible to get the IRS to answer) (1) Is there any way to re-submit the returns with attached paperwork proving the expenses?

My solution, which is based on common sense and therefore probably not acceptable to the IRS, is to file an amended return showing their numbers and then the correct numbers, and attaching any proof of the expenses.

PS I went to a district office in person and the IRS agent hands me bulletins to read.

PS I am more than willing to pay for this answer - it means literally thousands of dollars to my client's representatives.

Jeanette Palmer
Submitted: 3 years ago.
Category: Tax
Expert:  BK-CPA replied 3 years ago.

Pay attention to your statute of limitations (runs from return dates or the dates the tax is paid). I assume you are familiar with these rules as a preparer.

 

The proposed amendments by the IRS do not have to be accepted. They can and likely should be challenged just as you say (with an amended return if applicable, but otherwise just the supporting documentation for the originally filed tax return). IRS notices come with instructions for response and carry a special address for filing in the case of an amended return where the taxpayer is under audit.

 

If need be, you could potentially take this all the way to court. You first challenge, appeal within your time frames, etc. (I am not attuned to the specifics of your case in terms of dates, notices, etc.).

 

Your goal is to provide the correct documentation (noting the IRS substantiation requirements for ordinary and necessary business expenses, which I also assume you are familiar with as a preparer). No taxpayer should be made to unfairly pay tax, especially in a situation where they are going BK and have a medical condition as you begin to suggest, so definitely fight this tooth and nail. Find receipts, invoices, bank statements, credit card statements, ... everything you can get your hands on.

 

If you feel you are in over your head, or if you are not comfortable with the audit, appeals, liens / seizure of property, and court processes associated with an IRS audit, you should perhaps back down from the engagement. Again, I'm not attuned to the specifics. You said you got the pamphlets from the IRS, so I won't reproduce anything here unless you request it (in which case I would be happy to).

 

Thank you for your question.

 

BK-CPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 793
Experience: Owner of a CPA firm
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