{"id":3653,"date":"2020-01-21T09:19:40","date_gmt":"2020-01-21T14:19:40","guid":{"rendered":"https:\/\/keysolutions.us\/blog\/?p=3653"},"modified":"2020-01-21T09:19:41","modified_gmt":"2020-01-21T14:19:41","slug":"mileage-deduction-lost-despite-taxpayer-maintaining-mileage-log","status":"publish","type":"post","link":"https:\/\/keysolutions.us\/blog\/mileage-deduction-lost-despite-taxpayer-maintaining-mileage-log\/","title":{"rendered":"Mileage Deduction Lost Despite Taxpayer Maintaining Mileage Log"},"content":{"rendered":"\n

\u201cTax Specialist\u201d Fails to Sustain Schedule C Deductions When Audited by the IRS <\/strong><\/p>\n\n\n\n

Background<\/strong><\/p>\n\n\n\n

A\nmarried couple (H. Samadi<\/em>, TC Summary Opinion 2018-27) included a\nSchedule C on their personal\nincome tax return which reflected the husband\u2019s translation services, real\nestate activity, and tax preparation services. The Schedule C reflected a loss\nwhich was used to offset other sources of income. <\/p>\n\n\n\n

The\nhusband self-prepared their joint income tax returns identifying his occupation\nas a \u201ctax specialist\u201d and his wife as a register nurse.<\/p>\n\n\n\n

The husband was part of a group of five friends and\nfamily that intended to buy homes, renovate them, and sell them for a profit\n(house flipping). He was a licensed real estate agent who had access to\nproperties that were for sale. The investment group had decided that Samadi\nwould manage the properties purchased.<\/p>\n\n\n\n

Samadi prepared mileage logs to\ndocument the mileage he drove to see the potential investment properties. He relied\non IRS Pub. 463, Travel, Entertainment, Gift, and Car Expenses, in preparing\nthese mileage logs. He maintained a daily spreadsheet on his computer for each\nyear’s mileage log. He input the starting and ending addresses, beginning and\nending mileage, miles traveled, and business purpose of each trip. According to\nthe mileage logs, he drove 24,882 miles in 2013 and 25,220 miles in 2014. <\/p>\n\n\n\n

IRS Findings<\/strong><\/p>\n\n\n\n

The\nmileage book reflected that the taxpayer made two round-trips on Saturdays. He\ndrove almost 190 miles to pick up his \u201cclient\u201d, drove back the same distance to\nshow a potential investment property to his \u201cclient\u201d (near his personal\nresidence), drove 190 miles to return his \u201cclient\u201d back to their home, and then\nreturned to his residence. His \u201cclient\u201d was his brother-in-law or another\nmember of the investment group. The group did not buy any investment properties\nin the years audited. During these tax years, Samadi did not earn any real\nestate commissions. <\/p>\n\n\n\n

Business\ndeductions are allowed for ordinary and necessary expenses in the course of a\ntrade or business. <\/strong><\/p>\n\n\n\n

The\nIRS denied the real estate deductions on Schedule C because the taxpayer could\nnot provide any evidence to suggest that he was continuously and regularly\nbuying and selling real estate as a real estate agent to clients. At best, the IRS\nfound that the husband\u2019s activities were in the exploratory or formative stages\nof forming a business of flipping houses and that the business had yet to\ncommence. <\/p>\n\n\n\n

In addition to assessing taxes for the denied tax deductions, the IRS\nassessed accuracy-related penalties because the Samadi\u2019s had not acted\nreasonably and in good faith<\/strong> with respect to the substantial understatement\nof income tax. The taxpayers were unable to explain which IRS publications or\nother authority they consulted to determine whether the husband was carrying on\na trade or business. Further, the husband held himself out to be a tax\nspecialist and prepared tax returns as a business. Therefore, he should have\nbeen able to consult the tax law or regulations to determine whether he was\ncarrying on a trade or business.<\/p>\n\n\n\n

Tax Law Overview<\/strong><\/p>\n\n\n\n

Generally, the IRS\u2019s\ndetermination of a deficiency is presumed correct, and a taxpayer bears the\nburden of proving it incorrect. In addition, deductions are a matter of\nlegislative grace and the taxpayer bears the burden of proving entitlement to\nany deduction claimed. <\/p>\n\n\n\n

If the taxpayer\nproduces credible evidence with respect to any relevant factual issue and meets\nother requirements, the burden of proof may shift to the IRS.<\/p>\n\n\n\n

IRC Sec. 162(a) provides\nthat \u201cthere shall be allowed as a deduction all the ordinary and necessary\nexpenses paid or incurred during the taxable year in carrying on any trade or\nbusiness\u201d. The courts have found that \u201cto be engaged in a trade or business,\nthe taxpayer must be involved in the activity with continuity and regularity\nand . . . the taxpayer’s primary purpose for engaging in the activity must be\nfor income or profit.\u201d <\/p>\n\n\n\n

Furthermore, Sec. 162 does not permit current deductions for startup or pre-opening expenses incurred by a taxpayer before beginning business operations. {See<\/em> IRC Sec. 195(a) for possible relief} <\/p>\n\n\n\n

Court’s Findings<\/p>\n\n\n\n

The Tax Court decided in favor of the IRS that the taxpayer was not engaged in a trade or business related to his real estate activities<\/strong>. It found that the taxpayer had not provided any credible evidence that he was engaged in a trade or business and thus the burden of proof had not been shifted to the IRS. The court state that looking at investment properties did not rise to the level of being engaged in a trade or business.<\/p>\n\n\n\n

Since the taxpayer was found not have been engaged in a trade or business, the veracity of the mileage logbook was not determined as the taxpayer was not allowed any Sch. C deductions related to his real estate activities. <\/p>\n\n\n\n

The court satisfied itself that the IRS\u2019s 20% accuracy-related penalty attributable to a substantial understatement of income or to negligence or disregard of rules and regulations had been properly approved by the IRS. The burden is then on the taxpayer to come forward with persuasive evidence to show he acted with reasonable cause and in good faith with respect to the underpayment of tax. <\/p>\n\n\n\n

The court took note of the fact that the taxpayer held himself out as a \u201ctax specialist\u201d and was unable to provide any evidence that he researched the tax law or IRS regulations regarding what constitutes a trade or business. In fact, the taxpayer testified that he did not see a purpose for referring to any regulations in preparing their joint income tax return. <\/p>\n\n\n\n

<\/p>\n\n\n\n

If you would like to discuss your business or personal tax planning<\/a>, tax preparation<\/a> and other financial concerns with an experienced tax professional, we invite you to call 610-594-2601<\/a> today to make an appointment at our Exton PA CPA office<\/a> to discuss your situation. You can also schedule a consultation at Click Here<\/a>. <\/p>\n\n\n\n

Copyright \u00a9 2020 Keystone Financial Solutions, Inc.  All rights reserved. <\/strong><\/p>\n\n\n\n

BE SURE TO READ THE DISCLAIMER PAGE: Tax laws, IRS rules and regulations change frequently<\/strong>. Although we hope you’ll find this information helpful, this blog is for educational purposes only and should not be considered as the rendering of tax, legal or investment advice. The publisher shall not assume liability for any losses, injuries, or damages from the display or use of this information.<\/strong><\/p>\n\n\n\n

About F. Bryan Haarlander, EA, CTRS:<\/strong><\/p>\n\n\n\n

Bryan\nHaarlander is an IRS licensed Enrolled Agent and who owns and operates a\nspecialized tax services firm serving clients in the western suburbs of\nPhiladelphia, PA, which includes the cities of Chester Springs, Coatesville,\nCollegeville, Devon, Downingtown, Exton, Frazer, King of Prussia, Paoli, Philadelphia,\nPhoenixville, Pottstown, Radnor, Reading, Wayne, West Chester in Berks,\nChester,  Delaware, Montgomery and\nPhiladelphia Counties, as well as clients in Delaware, New Jersey, New York and\nthroughout the continental USA. <\/p>\n\n\n\n

A Certified Tax Resolution Specialist, Bryan is well-known for his IRS tax resolution expertise and his book How to Resolve Your IRS Tax Debt Problems. <\/strong><\/a><\/em><\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

\u201cTax Specialist\u201d Fails to Sustain Schedule C Deductions When Audited by the IRS Background A married couple (H. Samadi, TC Summary Opinion 2018-27) included a Schedule C on their personal income tax return which reflected the husband\u2019s translation services, real estate activity, and tax preparation services. The Schedule C reflected a loss which was used to […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[3],"tags":[132,69,73,63,33,34,21,64,71,31,72,66,23,41,65,32,40,39,67,68,38,70,151,37,36,35,150,42,168,28],"class_list":{"0":"post-3653","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-irs-tax-planning-ideas-tips-news","7":"tag-accuracy-related-penalty","8":"tag-audits","9":"tag-bankruptcy","10":"tag-bryan-haarlander","11":"tag-chester-county-cpa","12":"tag-exton-accountant","13":"tag-exton-cpa","14":"tag-f-bryan-haarlander","15":"tag-first-time-abatement","16":"tag-frank-haarlander","17":"tag-innocent-spouse","18":"tag-installment-agreements","19":"tag-irs","20":"tag-irs-tax-debts","21":"tag-irs-tax-payments","22":"tag-keystone-financial-solutions","23":"tag-offer-in-compromise","24":"tag-oic","25":"tag-partial-installment-agreements","26":"tag-penalty-abatement","27":"tag-philadelphia-cpa","28":"tag-reasonable-cause","29":"tag-tax-adviser-near-me","30":"tag-tax-blog","31":"tag-tax-expert","32":"tag-tax-planning","33":"tag-tax-professional-near-me","34":"tag-tax-resolution","35":"tag-trade-or-business","36":"tag-west-chester-cpa","37":"entry"},"aioseo_notices":[],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/p9W9tf-WV","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/posts\/3653","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/comments?post=3653"}],"version-history":[{"count":17,"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/posts\/3653\/revisions"}],"predecessor-version":[{"id":3799,"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/posts\/3653\/revisions\/3799"}],"wp:attachment":[{"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/media?parent=3653"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/categories?post=3653"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/tags?post=3653"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}