Question About Dealing With an IRS Audit That Incorrectly Attacks Deductions
My spouse and I are being audited for an IRS audit that incorrectly attacks eductions about her miscellaneous expenditures related to her job as a realty sales specialist.
The IRS inspector disallowed her various expenses because she has no written statement that says those expenses were ordinary and necessary for her sales duties, and no listing of what expenditures she is required to pay in regard to her employment.
The examiner indicated that to be considered legitimate, the policy or statement has to be dated for the tax year under audit and signed by an officer of the company.
Can you offer us assistance on what should be included in the declaration of what is “ordinary and necessary” and what she is required to pay as a self-employed realty sales expert?
She is not reimbursed for any of her expenses.
Can you likewise tell me whether the IRS examiner, in referring to the officer of the company, suggests her broker at her Real Estate Brokerage or my spouse as the sole owner of her realty business?
Answer About Dealing With an IRS Audit That Incorrectly Attacks Deductions
Whoa! Whoa!
You and this IRS examiner are residing in the land of the blind. This is a case of either a huge miscommunication or total incompetence.
Let’s initially get your income tax return position in place. Your spouse is not an employee. She is an independent contractor. As such, she is a sole proprietor business that reports her company income and expenses on Schedule C of her Form 1040.
The authority for her organization deductions rests in IRC. Section 162( a), which specifies, “There will be permitted as a deduction all the ordinary and necessary costs paid or sustained during the taxable year in carrying on any trade or business …”
To deduct the ordinary and necessary expenses, your spouse does not need any statement signed by her or anybody else to defend against this
IRS audit ahat incorrectly attacks deductions
. And she does not require a different list of such costs as these are currently listed on her Schedule C.
Perhaps your spouse is expensing some assets that must be capitalized, and the IRS inspector is trying to find the special $2,500 expensing election that we described in Act Now! Get Your 2018 Expensing in Place.
The special $2,500 expensing election is the only deduction we can think about where your spouse would require a written declaration to justify a sole proprietor business deduction for her one-owner, no-employee sole proprietorship.
To clean up this matter of an IRS audit that incorrectly attacks deductions
, consider making a copy of your spouse’s 1099 and giving that to the examiner. If that fails, request to speak to the examiner’s manager.