- quote -

<snip
- quote -

I checked the 1966 version of Pub 1945A. (I'm not a pack
rat, but it's so easy to save those CDs). The only
difference that I saw was that the present Schedule D format
allows a "see statement" electronic attachment in addition
to the eight or so lines for misc. expenses. The 1966
version didn't allow for an attached statement.

--
Don EA in Upstate NY

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Don Priebe wrote:

- quote -

Then the next interesting question would be, assuming that
hasn't changed in recent years (and I see no reason why it
should have), is why Helen's agent (it was an agent, as I
recall--may have been someone else in the exam chain) didn't
have that information readily available. And, as well, did
the person who made the initial "examine/don't examine" call
when the return was flagged for examination consideration
have that information?

With a paper return, the agent would have a copy of the
paper return and, therefore, the descriptions of the other
expenses.

The design *should* be that an efiled return is "audit
neutral" in all aspects of the process--and that would
include making the same information available inside the IRS
at steps in the audit process.

I wouldn't be surprised, given the rather messy state of the
IRS information systems, that the "standard" printout is
limited to what would normally be captured in a paper
return. But since the process, in the case of the paper
return, would also end up delivering a copy of the paper
return to the examination group, the efile needs to
independently provide that information to those individuals
as well.

Otherwise that means the examination group faces a poor
choice: with a lack of information, the only option to
obtain it is to pull the return for exam. That would result
both in returns being "passed" on that should have been
examined (it turns out the other expenses were a one liner
for "bribe paid to local councilman" <grin> ) *AND* examining
returns where the information would have caused a pass
otherwise (the detailed information makes clear the expenses
were simply misclassified, but not otherwise out of line
*or* the items simply don't appear to be likely revenue
generators, since the only issue would be a whether records
exist to support the expense and they otherwise don't appear
to be personal, etc.).

--
Ed Zollars, CPA
Phoenix, Arizona

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Straying off topic we have ...

- quote -

Not if you worked on a GE 635 (later known as a Honeywell
635) mainframe. A 36 bit word, divided into six 6-bit
bytes. Each byte conveniently represented by a pair of
octal numbers. Of course since it used 6-bit bytes it could
only have 64 characters in the character set. Our motto -
We don't need no stinkin' lower case! (But then of course
there were no lower case characters on a standard IBM card
either.) Where is my -029 keypunch?

--
Don EA in Upstate NY

Moderator: Six bits to a byte is way before my time.
But I do recall keypunchers without interpretators

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[Discussion about expenses listed on page 2 of Schedule C -
How are they transmitted to the IRS?]

According to current Pub 1345A, the detailed descriptions
and amounts of all the page 2 expenses ARE transmitted to
the IRS as a part of the normal e-file submittal. It's not
just the total amount. I just verified this by running a
test case and looking at the efile itself.

(In a previous life I used to read core dumps in octal. My
thumbs have almost disappeared.)

--
Don EA in Upstate NY

Moderator: I thought core dumps were in hex!

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Helen P. OPlanick EA wrote:

- quote -

It would be nice for the IRS to have an efiled return that
has the same information as a paper return for the purpose
of determining whether or not to examine the return. Of
course, the best way to get that changed may be if the IRS
discovers they are spinning their wheels too much on
examining efiled Schedule Cs where they don't know ahead of
time what the "other expenses" were.

--
Ed Zollars, CPA
Phoenix, Arizona

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- quote -

You know Ed, I never thought it of that way and you are
correct. Both returns were efiled. I'm wondering if others
of you that feel you have been picked due to high page 2
numbers had them on paper or efiled returns.

And one thing to think about, these were 2000 returns, it
could be changed by now.

Helen, EA in PA
Member of The Tax Gang
President, PA Society of Enrolled Agents
Campaigning for NAEA Board of Directors - Looking for YOUR vote

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Michael T Wing CPA wrote:
- quote -

It also raises an interesting thought--note that Helen
indicated that it wasn't *transmitted* to the IRS either.
That means when a "real person" is reviewing an efiled
Schedule C to determine if it should be examined, they have
no capability to review the descriptions contained--nor does
the examining agent until he/she has "invested" the time to
request the information.

It might be interesting to speculate on what impact that
might have (both positive and negative) on taxpayers whose
returns are flagged for potential examination.

It's not surprising that the amount is not keyed. It is
more surprising that it would not be transmitted in an
efiled return.

--
Ed Zollars, CPA
Phoenix, Arizona

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Helen P. OPlanick EA <heljangal[at]aol.comnojunk> wrote:

- quote -

So you are referring to the total on line 27 of Schedule C?
It is interesting to note that open lines in Part V are NOT
numbered, so I suppose the detail contained thereon is likely
NOT captured by the great IRS computer. Hmmm...

MTW

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- quote -

The items on the "printouts" cannot be assumed to be the
ones which are part of the DIF formula, as they are, among
other purposes, the ones which historically are gathered for
the Statistics of Income publications. If "Other expenses"
are part of the DIF formula -- a big IF -- it certainly can
help to categorize them accurately in preprinted line items.
However, should it be unsuccessful in suppressing the DIF
score, be careful one has not distorted those items. In
manual screening, the classifier or the later assigned agent
who can also kill the return considers the size and presence
of line items in relation to the business as described on
the top of the schedule, and relationship to other items on
the schedule. Thus an advantage of the descriptive phrases
is better describe odd items, and it can make the difference
as to whether examined or not.

F--

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- quote -

Helen, that is a brilliant observation. I just went back
through several hundred audited (schedule C type) returns
and in virtually every one, "OTHER EXPENSES" was a major
factor. The only exceptions were some with very high TM&E. I
now can see where properly distributing these expenses on
page 1 may be well worthwhile.

Timothy E Kelly, Esq.
Certified Specialist, Taxation Law
Board of Legal Specialization
State Bar of California

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Helen P. OPlanick EA wrote:

- quote -

The DIF formulae are both complex and top secret within IRS,
so anyone surmising how it works including me is really
guessing. The magnitude of "Other expenses" is sensitive to
type of business within any of the several Sch C income
classes of 1040 - each scored with a separate formula.
That's also true of other Sch C line items, whether relative
size or even presence at all.

It is thus quite possible that few Sch C items are part of
the formula, due to small sample size - the TCMP audits that
are still the basis of DIF, and then broken down into income
classes. Further complicating the writing of selection
formulae was the fact that TCMP audits were overwhelmingly
no or small change, meaning few returns with larger changes,
and thus determining which line items are the best variants
to apply to the whole population. More may be thus
statistically known about returns which are compliant rather
than those which aren't.

Though written in statistical (a foreign) language, the
below linked paper by an IRS statistician has many details.
It also alludes to the fact that one goal of DIF is to
merely segregate out the mass of returns with little or no
potential for positive change, so that the ones which are
potentially subject to manual screening are cost-effectively
the better ones to look at. However, from my long
experience there, it was mysterious how -- in feeble
attempts to "crack" DIF -- the magnitude of even
historically noncompliant line items play a part in the DIF
process.

http://www.amstat.org/sections/srms/...s/1987_048.pdf

F--

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- quote -

Kinda. The business had a small loss, but what tipped it to
audit DIF scoring was the expenses listed as OTHER on page
2. The score is based on the total of those expenses, not
each individual expense. So the two I had both had large
expenses I did not otherwise catagorize and used page 2 for.
I no longer do that, but find each expense that I can a
"home" on page one.

Helen, EA in PA
Member of The Tax Gang
President, PA Society of Enrolled Agents
1040EZ and 1040A tax prep at www.1040.com/1040pro

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