jainen

>>black-and-white ain't so black-and-white after all<< One post in that TaxAlamac link points out that Notice 2008-5 conflicts with the tax code, as I noted that it is very weak authority. After we work with it, I'm sure we will have to demand better guidance. For example (a NEW example nobody has mentioned yet), what if girlfriend has signed an 8332 to her ex who is paying major child support? Realistically, it's going to be mighty hard for IRS to determine support amounts within the constraints of confidentiality. The girlfriend could not be compelled to cooperate in the determination because she is not a party to the dispute between her boyfriend and her children's father. Your interpretation of the rule will vary dramatically depending on which of two is your client. So even if the notice did not contradict the code, it might be unenforceable if it can't be applied equitably.

>>he could deduct the expenses for the trip as advertising<< This kind of deduction has a threshold. If the PRIMARY purpose of the trip is business, then travel expenses can be deducted except for those allocated to personal expenses. If the primary purpose is non-business, than NONE of the travel expenses are deductible, although costs of specific business activities on the trip can be claimed. The primary purpose is determined by time, not importance, and should be supported by an appointment calendar or other records. Another limitation is that deductible business costs must be reasonably proportional to the income. Scattering business cards is not a particularly effective marketing plan and doesn't lead to much expectation of sales. The question is not whether he went to Tennessee to sell a boat, but whether anyone there will go all the way to Alabama to buy one.

>>A banker friend... << I'm surprised a banker would ask such a question. Generally extra payments on a note should be applied to principal, because there is no interest owing at the time. In the case of mortgage points, the prepayment actually lowers the interest rate. Any other prepayment of interest would mess up the truth-in-lending disclosures. Payment for a bill to be incurred in the future is not currently deductible, even for a cash-basis taxpayer. Nevertheless, I would probably let it go unless the amount was way out of balance, say more than 1/2 of the regular annual cost. I would argue with him if it were more than three months worth. His side of the argument would need to show that there was a bona fide business purpose (other than tax avoidance) for the prepayment, and that the bank did not apply it to principal.

>>Family mortgage arrangements are not uncommon in my experience, and I have never seen a problem with deductibility from the IRS.<< I agree there is no problem with the daughter deducting her interest payments (provided, of course, that her second mortgage can be construed as replacing acquisition debt). The problem is the father's deduction. He can NOT elect "to treat the mortgage borrowing as investment borrowing per Section 1.163-10T(o)(5)." The election is only to not treat it as qualified home equity debt. Facts & circumstances determine whether it is investment borrowing. Since (I assume) he is not trying to make any money off the loan to his daughter, the fact is that he is not investing in anything in this circumstance. He is simply using his equity temporarily for a personal purpose. What you call "one of the oldest forms of fixed income investment" does not apply because he has no expectation of net income.

>>property that produces interest<< I would consider treating daughter's payments as investment interest, but I'm not comfortable with it because of the substance-over-form doctrine, specifically the question of economic substance. If the father is simply passing the money through at the same rate as he is paying, there is no true investment. I don't have a ready citation, but it is such a general principle that I'm sure it can be backed up. It might be expressed as a below-market or gift loan, since the market rate for the daughter's second mortgage would not equal the father's first mortgage terms. Which of course is the very reason why they are doing this!

>>his tax home is his RV<< Chief Counsel Advice 200750017 summarizes older rulings that their ship itself is the tax home for the crew of a Navy vessel (unless it is in dry dock). It's a bit of a stretch to equate a warship with an itinerant worker's vehicle, but at least it shows that "tax home" is not limited to a specific geographical location.

>>the interest from the loan on dad's house is a schedule A itemized deduction and will most likely not fully offset the schedule B interest income from daughter.<< That would only be true if she paid the interest to him and he paid the bank. Why not have the daughter co-sign and list her home as additional security on the father's loan? Then the daughter can pay that mortgage directly and report the interest on her own Schedule A.

>>how to proceed to at least get a fair hearing with the IRS<< I think you have a bleak situation. It might be unfair, but the client did it to himself. He was at least careless in the way he traded off dependency and filing status, and it looks even worse. I guess you now realize there is nothing more to be done with IRS audit and appeals. Even if you could find someone sympathetic and understanding, there is no procedure available to fix it -- except the offer in compromise which I suggested before. I've never worked out how to approach doubt as to liability. Your documents are suitable for this purpose, but how are you going to structure the amount to offer? Perhaps you could accept the penalty and interest only, on the grounds that those figures do fairly reflect the errors the client made in filing. Don't forget that if you go to court and lose, you will no longer be able to claim doubt as to liability. And you probably will lose in court. I wouldn't be surprised if you don't even get a chance to present the case. The first thing the IRS is going to say is that the client has no standing to sue because he did not exhaust administrative remedies first. It's a catch-22, and a good one. But what if you do get before the judge? Remember when I said audit reconsideration would only give you ten seconds? That's probably 20 times as long as you'll get in claims court. Do you expect the judge to be impressed with "sperm and his name on the birth certificate"? You know he's going to be more impressed with the signature on the 2003 tax return. With such a trivial dollar amount, you'll be lucky to avoid penalties for a frivolous claim. And the IRS can then come back with EIC sanctions just to be nasty. Do the OIC, and get on with life.

>>I have a client that I believe this is their only recourse<< Why Court of Claims? Usually that is used when you need to cite precedent that doesn't apply to Tax Court. I wouldn't expect that sort of issue in the case of a credit. It is also pretty expensive and you aren't going to get awarded legal fees, so besides not getting paid an attorney would incur substantial costs. And I don't think a taxpayer could represent himself there; he must have an attorney. How much money is involved and what do you base your estimate of success on?

>>the IRS has these prior years in pdf format<< For single returns, doing them by hand is best. Your computer, and especially your printer, may not handle older software without a lot of tweaking. You won't be familiar with the quirks and workarounds of the old programs either. Cheat by doing it in the current year program so you get the totals for W-2's and Schedule B and so on. Then make your corrections for the specific year. Copy in pencil or else get a forms program that lets you scan blank forms and "type" anywhere on it so it looks nice.

So the male response is to spice it up a bit, and the female response is to turn down the heat. It figgers.

How come when I cook bacon, it makes the eggs stick worse to the cast iron pan? My wife says, "Sugar, sugar," but I tell her breakfast is no time for little endearments.

>>I have not had time to read the whole case yet.<< It's a good example of a "moral victory." So the IRS got slapped down for abusing its discretion--whoop-di-do. Their own numbers show the IRS had a LOT of room to negotiate, and "winning" cost the taxpayer fifty thousand dollars. In fact, it could be a lot more. The court didn't order the IRS to accept the offer, just to not reject it without more analysis. Take a look at the letter the IRS sent -- they were not considering the value of his OTHER business. The lawyer should have recognized that warning. I think he did a terrible job.

>>What is a composite return?<< It either means when you buy too much chipboard, or the way sunflowers reseed themselves every year.

>>Is there any other way I can respond on his behalf<< You can not respond on his behalf. Even if you had prepared the return, you could not handle the case after the examination report was issued. You can advise him in various ways, but I wouldn't recommend you go so far as "preparing the response for him." If the appeal fails, he could turn on you and you would not be able to defend yourself in terms of professional conduct. If you do not have experience or guidance, your help in IRS appeals will probably not be productive anyway. I suggest you work through an attorney or EA's office for this engagement.

>>The U. S. Tax Court<< Most military volunteer shortly after high school, before they have a chance to develop job skills. After their service, the CWT helps them get trained and placed in civilian jobs. It was a national disgrace that we made veterans pay for their own retraining, while only a court ruling could finally get them what they deserve.

>>tell me if Rev. Ruling 68-114 has been superceded<< It is still in effect as originally written. It's old, though, so other laws or rulings on Section 267 might have nipped at its edges.

>>Jamaica is sounding really really good right now<< Well, that is the problem with this complicated tax deduction. The rule for charitable travel is not that the main purpose is non-profit or that most of your time is volunteer. It is that the travel can't have ANY significant element of personal benefit. The pub kc cites has a couple of examples of non-profit travel that is not deductible. One is an archaeological dig, and the other a survey of marine life. Another limiting factor is that the work must actually be for a domestic organization, not simply sponsored by one. There's a lot of info about clergy income and expenses, but it seems the IRS and courts have shied away from defining lay religious work. It really is a study in facts & circumstances. Usually I suggest my clients take a conservative approach to such deductions. Get your rewards in heaven, and render unto Caesar--that sort of thing.

>>the clergy tax book indicating that while not qualifying for travel expenses, the evangelist would still be able to deduct the transportation from one job site to another - which could also be from Seattle to Boston<< Don't be silly. There are no special rules about clergy travel. Like any other worker, they deduct transportation away from their tax home and local travel between jobs. That means if he preaches in three churches on Sunday, travel from #1 to #2 and #3. It doesn't mean across the continent, even if he flies in a single day. I notice you didn't identify the source of your quote, nor any authority the author may cite. Many on this forum are professionals who require something more substantial than "I read it somewhere." There is a large number of IRS and court rulings on a topic as common as business mileage; if you can back up your author's opinions we would all appreciate it.

>>The Judge ruled that the IRS abused their discrection in rejecting the offer<< That's not exactly what happened. I mean, that's technically what the decision said but the devil is in the details. The taxpayer, a non-filer, offered $30K to settle a debt of 3/4 million. The IRS noted substantial cash proceeds from recently selling a business and refinancing the home, and asked for a counter-offer to include that. The taxpayer refused. The court simply gave the taxpayer another chance to submit the same counter-offer that the IRS had already asked for. It did say the taxpayer could reduce the amount of cash proceeds by relatively small sums that had already been paid for taxes, child support, and legal fees, but it agreed with the IRS that his original offer was "far below his available income/earnings." In fact, the court's judgment was that an appropriate offer would be $107,000, considerably more than the $58,000 that the IRS had determined to be the actual collection potential.

>>The waves are just awesome from that big storm up in Oregon!<< Okay, wait 'til summer, but you're missing an amazing sight. http://www.sfgate.com/cgi-bin/object/artic...1/MN4ITQULT.DTL

At least here in California legislators are working hard to solve the budget problems without raising everyone's taxes. Last week, in fact, they raised their OWN taxes--and only their own! Yep, it's true. That pay increase they gave themselves will increase the tax liability for each of them.

>>You can't win with this client.<< When the original post went up last Friday, I wasn't in the mood for such an obviously lost cause. But first thing Monday I'm up for any challenge. I'm feeling invincible because I already finished all my Christmas shopping! (Now I just have to get presents for everyone else.) Eli hails from down along the border and maybe it's different there, but here in California a cop haircut is definitely NOT suitable for ordinary wear. And you know shoe polish is never suitable for anything anywhere. The sun shines very bright in southern Texas (when it shines at all), and cops need good eyesight so sunglasses are appropriate as safety equipment. Take depreciation or Section 179, though; if they cost $250 they durn well better last more than a year. As for the rest of the clothing, I'll let one of our northern members comment on what "cold weather gear" might mean on the gulf coast, but obviously a Texas Ranger needs a good set of jackboots. One thing for sure, I'm not about to question a police officer's underwear!

>>his tax home is his RV therefore, the travel expenses between preaching places (ex. Boston to Seattle) would qaulify?<< I would not agree. It is the opposite of the revenue ruling I cited and the court case you quoted. If his tax home is an RV, then whether he is in Boston or Seattle all he has is local commute because he is never away from his tax home.

>>If the taxpayer is a transient or itinerant their tax home is where they are<< This was my initial reaction to this thread too, but I hesitated to post it. There is an alternative viewpoint (Revenue Ruling 73-529) by which, given certain facts & circumstances including the lack of a main place of business, the taxpayer's main home IS their tax home. I was thinking of the traveling nurses, sent by an agency to various cities for short assignments. The ones who lost their IRS case actually moved repeatedly, instead of maintaining a home base and duplicating living expenses. But itinerant preachers typically have a regular home including a significant church membership. So in the end I think I would look to the facts & circumstances expecting to allow such travel expenses.