How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask Barbara Your Own Question

Barbara
Barbara, Enrolled Agent
Category: Tax
Satisfied Customers: 1158
Experience:  16+ years of experience in tax preparation; 25+ years of experience as a real estate/corporate paralegal.
71603090
Type Your Tax Question Here...
Barbara is online now
A new question is answered every 9 seconds

I have an income tax question that I need to get answered.

Customer Question

I have an income tax question that I need to get answered. I have a client whose 2010 tax return is being audited by IRS (by mail). The client is a self-employment consultant to the health care industry. In prior years my client was an employee of several health care companies, United Healthcare, etc. holding high level positions with them. On the 2010 return, after having been unemployed for 2 years, my client attempted to earn his living as a consultant, having many contacts in that industry. The 2010 Sch. C showed $1,500.00 in income received, $6,500.00 in expenses other than automobile expenses and $15,000.00 in automobile expenses. All of this resulted in a net loss of $20,000.00 (all figures are rounded). We furnished the IRS with documentation of receipts, etc for the $6,500.00 of other expenses and the speedometer readings, beginning and ending, to establish the total miles drived during the year and applied a percentage for business to that.

The IRS has returned a notice of adjustment to the taxpayer. In that notice they agreed that we had the information necessary to substantially support the $6,500.00 in other expenses. Because no log was sent to them, they would not allow the automobile expenses.

All that being said, in addition to disallowing the $15,000.00 in automobile expenses, they only allowed a deduction of the other expenses of $1,500.00 - limiting the deduction to the amount of income generated - reducing the net income to $-0-! In all my years in practise I have never encountered this reasoning other than dealing with hobby type businesses. We need to respond by 12/11/12 and are preparing specific dates and mileage to accomodate the backup of the autumobile expenses.

I am looking for any information that you can provide or suggest to remove the $1,500.00 limitation that they are placing on the deductions. It has always been my understanding that the potential to earn a profit was the governing principle in determining allowable profits and losses on tax returns (other than hobby activities). There is no question that my client has the ability to earn a profit based on his experience and all the contacts he has and that he made in 2010, all of which were documented in the receipts, etc. that were sent to IRS in the in initial response.
Submitted: 1 year ago.
Category: Tax
Expert:  Barbara replied 1 year ago.

bkb1956 :

Thank you for allowing me to answer your question. However, I must agree with you that there should be no such limitation on the Schedule C. In doing so, that defeats the whole purpose of the Schedule C, doesn't it? Perhaps the person who reviewed the return at the IRS was not knowledgeable. (I'm sure you know that happens.) Have you tried calling the IRS and speaking to someone to go over the notice of adjustment with you? I have found that sometimes when I call the IRS the person I am speaking to can spot errors made and correct them while I am on the phone. I would still assemble the documentation for the automobile expenses and submit it by the 12/11/12 deadline. Please let me know if I can assist you further. Thank you.

Customer :

Nothing further needed. I got the answer i was looking for on my own.

bkb1956 :

I guess you realize that the IRS will disallow expenses to correspond with the income generated, but based on the information you supplied, I was under the impression that you have all of the backup documentation for the expenses. I would appreciate it if you would take a moment to revise your service rating of my answer as this is an important component of being an expert on this website. Thank you.

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
< Last | Next >
  • http://ww2.justanswer.com/uploads/KU/KUMI95/2013-9-30_195031_kumar.64x64.jpg Wallstreet Esq.'s Avatar

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
  • http://ww2.justanswer.com/uploads/CU/Cuttinggirl/2011-10-29_03719_wcrop2.64x64.jpg Wendy Reed's Avatar

    Wendy Reed

    Enrolled Agent

    Satisfied Customers:

    3052
    15+ years tax preparation and tax advice.
  • http://ww2.justanswer.com/uploads/CATax/2009-08-04_204548_Mark.jpg Mark D's Avatar

    Mark D

    Enrolled Agent

    Satisfied Customers:

    985
    MBA, EA, Specializing in Business and Individual Tax Returns and Issues
  • http://ww2.justanswer.com/uploads/IN/insearchoftheanswer/2013-8-16_0233_attorney.64x64.jpg Richard's Avatar

    Richard

    Tax Attorney

    Satisfied Customers:

    3229
    29 years of experience as a tax, real estate, and business attorney.
  • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    6121
    Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JG/jgordosea/2012-6-7_43138_GordosVeritas.64x64.jpg jgordosea's Avatar

    jgordosea

    Enrolled Agent

    Satisfied Customers:

    2783
    I've prepared all types of taxes since 1987.
  • http://ww2.justanswer.com/uploads/OZ/ozaukeecpa/2012-6-7_193219_Picture1croppedandshrunk.64x64.jpg MequonCPA's Avatar

    MequonCPA

    Certified Public Accountant (CPA)

    Satisfied Customers:

    2231
    CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.
 
 
 
Chat Now With A Tax Professional
Barbara
Barbara
Tax Professional
1158 Satisfied Customers
16+ years of experience in tax preparation; 25+ years of experience as a real estate/corporate paralegal.