Poor Record-Keeping Can Put You in the Hole

SUMMARY BOX

* the pair the courts and the IRS are skilled at spotting the signs of rebuilded records, so art dealers should think twice before slipping non-contemporaneous records by means of either the IRS or the courts.

* The tax digest in section 162 allows a deduction for ordinary and necessary expenditures paid or incurred during a taxable year in carrying upon a trade or business.

* In order to favorably maintain a deduction, the taxpayer must maintain sufficient records, and while estimates are allowed, the taxpayer must not away sufficient evidence to provide a basis for them.

Almost anyone who has at any time bet on a horse race has at single time or another been pok in the ribs through a shady looking character offering to put up to sale them a sure thing. Well, when it approachs to taxes, the IRS and art dealers, the IRS can advance up with a sure thing almost each time it audits a dealer's tax return

A string of court cases play like a severed record, repeating the same sonnet over and over again: a lack of adequate substantiation means no deduction. still in spite of repeated losse in the courts, more [i]or[/i] less dealers still roll the dice each year hoping their deductions will slip by means of with less than stellar records to back them up

freshly an owner whose deductions were slashed by dint of the IRS faced a justice who was less than sympathetic to his claims. The possessor claimed deductions for the disputed items totaling $24500 on the contrary after an audit, the IRS allowed a bare $8,700. The IRS said that the various business deductions were disallowed because the holder had not established that each amount was for an ordinary and necessary business outlay or was expended for the object designated. Unable to settle the differences, the holder took the dispute to U Tax Court.

The tax collection of laws in section 162 allows a deduction for ordinary and necessary charges paid or incurred during a taxable year in carrying upon a trade or business. The digest also states that personal, living and family charges are generally not allowed as a deduction. In order to prosperously maintain a deduction, the taxpayer must maintain sufficient records, and while estimates are allowed, the taxpayer must at hand sufficient evidence to provide a basis for them.

However, for certain deductions, the load of proof increases. Deductions for travel, including meals and lodging, entertainment and the use of listed quality such as passenger cars, computer and cellular phone all require additional information to sustain a deduction. For these items, adequate records include (1) the amount of the expenditure or use based on the appropriate measure; (2) the time and place of the expenditure or use; (3) the business intention of the expense or use; and (4) in the case of entertainment, the business relationship to the taxpayer of each one entertained.

Having station the framework, the court gazeed at the owner's deductions still in dispute. The possessor had claimed office expenses of $3200 At trial, however, he produc receipts totalling sole $400, which were for a computer printer and a cellular phone Because the one and the other were listed as property, the proprietor was required to establish the amount of business use, as well as the total use of the attribute Unable to do so, the tax court disallowed the $3200 including the $400 for the items overlayed by the receipts.

The nearest deduction covered meals and entertainment in which the proprietor claimed $1,650 while the IRS allowed solitary $487. The owner presented the court with 67 pages of receipts and checks. However, greatest in quantity only provided partial details similar as the word "meeting" or only a person's name. The court said this did not befitting even the minimum requirements of the digest The court further noted that it did not find the receipts at handed to be credible evidence. Nearly all the notations were made not upon the receipts themselves, but upon the copies of the receipts. The proprietor admitted that the notations were made at the extreme point of the year.

The court noted that smooth accepting the owner's statement about when the notations were made, and giving him the benefit of the doubt that the notations were not made in anticipation of the trial, the court conclud that it was unlikely that the possessor could have accurately remembered the business intent and person with whom he dined for the numerous costs which included fast food items, for up to a year beyond the date of the expense

The holder then presented a summary of greatest in quantity of the meal and entertainment outlays but the court concluded that it would not accept the summary as substantiation for the same reasons it didn't accept underlying receipts.

The court then move rounded to the claimed travel expenditures The owner presented receipts for travel charges totalling $4,500, yet had claimed sole $2,800 on the return. Again the receipts lacked the basic information required for travel charges such as the amount, time, place, and business end The court therefore upheld the IRS disallowance for the owner's travel expenses

The proprietor also claimed deductions for "other expenses" of that kind as postage, photocopies, training, convention compensations magazines and books. The possessor presented the court with 115 copied pages of receipts and other documents with a overlay sheet noting that the total was $10247 The possessor however, had only claimed $7424 upon the return.