Ed Zollars, CPA wrote:
- quote -

He had other evidence: A stipulation between parties that
the amount had been actually paid and incurred and was "for
the use of" a qualified charity (that the charity in
question qualified was a separately enumerated stipulation).
The stipulations of payment broke down the total amount
into several categories but only listed the annual total of
each category instead of each payment. Some of these totals
were less than $250 in their own right (even before
considering a reduction for any item or service of value in
return).

- quote -

Cohan (corrected) doesn't apply. The stipulations were
agreed to by the IRS because they saw actual checks for
payments AND a contract between the taxpayer and charity
stating the terms of the transaction (not a
post-contribution acknowledgement, but a pre-gift agreement
- but not one that limits what the charity can do with its
gift).

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Ed Zollars, CPA wrote:
- quote -

Since I argued that case:

If you want, I can send you the text of that. I actually
divided the amounts paid into 4 categories: 1) Amounts in
gross less than $250, 2) Amounts where the annual total
above $250 was less than $250 after proration (i.e.
charitable amount less than $250), 3) Amounts where the
annual total above $250, but after noting the PERIODIC
payment character, each component payment would be less than
$250, and 4) Amounts where the annual total exceeded $250,
but no payment information was submitted by either party.
By including category #1 in the disallowed amount, that's
where the Judge killed the under-$250 deminimus rule. He
made that clear when he denied the reconsideration (although
all that shows up on the record is "reconsideration
denied").

An appeal was not cost effective - the filing fee plus all
the costs of duplicating the record and preparing the
appellate briefs would have exceeded the deficiency found
for that issue.

- quote -

Appealing on principle tempted me, but besides cost, having
to do a court brief probably in April dissuaded me. :-)

- quote -

Which would then wash with the expense deduction they would
have been entitled to. However, does that matter? Think of
other "whipsaw" issues such as alimony vs. child support and
the taxpayer on the other side of the transaction.

It's a shame that the Court doesn't also post the parties'
briefs even though those are submitted on disk as well as in
paper form.

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Rick Porter wrote:

- quote -

If that is the case, then Judge Laro avoided holding on the
issue claimed (that the regulation was not valid when it
allowed individual contributions of less than $250 even
without acknowledgment, even when a total was in excess of
that amount). Now, it may very well be the case *was*
argued that way by the plaintiff and Judge Laro simply
ignored the argument. But it's just as possible that Judge
Laro simply decide the "gift" was the allocable share of the
annual expenses (a "single" gift shall we say) and that was
what was tested against the $250.

Nowhere did he state that the IRS regulation on this point
is invalid. In fact, had he said so, I suspect that would
have been grounds for reversal on appeal, since then the IRS
would have been arguing directly against its own regulation,
a position it should not be able to sustain in court. Heck,
courts of appeal have reversed when the IRS has argued
positions contrary to Revenue Rulings, and this would be
going well beyond that.

Now, as I said, Judge Laro may have stretched to be able to
throw this out based on this statutory holding in order to
avoid dealing with other objections to the situation. But
he was not dumb enough to openly find for the IRS by
allowing them to take a position invalidating a regulation
that the taxpayer had a right to rely on. He sort of
"telegraphed" to a court of appeals that he might have other
objections when he noted that the exempt organization didn't
report the receipt of the contribution on its books either.

--
Ed Zollars, CPA
Phoenix, Arizona

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"Ed Zollars, CPA" <ezollar[at]mindspring.com> wrote:
- quote -

I believe it's this case. It was an unusual fact pattern.
http://www.ustaxcourt.gov/InOpHistor...y2.TCM.WPD.pdf

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D. Stussy wrote:

- quote -

Can you give a citation to the case you are referring to here?

My suspicion is that what Judge Laro most likely wrote was
not that the $250 rule was invalid (as I recall, Code based
so to be invalid we'd need a U.S. Constitutional issue
here), but merely that the fact that a contribution claimed
was less than $250 didn't give the taxpayer carte blanche to
claim it in the absence of any evidenced whatsoever that the
expenditure was made, and it was made for a charitable purpose.

In essence, Cohen does not stand for a rule that you get a
deduction without any documentation merely because the IRS
doesn't provide for a specific disallowance in the absence
of specific documents. Rather, the taxpayer still most show
certain things even if they are attempting to get a
deduction under a Cohen case theory.

--
Ed Zollars, CPA
Phoenix, Arizona

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it's also an example of a business with a narrow customer
base (generally not a good idea if you can help it)

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Timothy E. Kelly, Esq. wrote:

- quote -

Charitable contributions: The Tax Court (under the 9th
Circuit; trial in Los Angeles) threw out the "under $250"
deminimus rule for aggregrate totals exceeding $250 and
found a requirement for acknowledgement. [Whether this was
a bad ruling or not, I won't go into here - but it has been
made (by J. Laro).]

- quote -

During my IRS days, I have done a few RPP cases myself
(about 5 where I audited all of the suspected client sample)
and participated in many more. These numbers of 20% or 100+
returns (out of 500) seem excessive as a "first contact" for
determining a potential abusive preparer. Pulling 20 or so
seems more appropriate. (In one that I did myself about
1989, I even ended up having the preparer sign an audit
report for his/her OWN return that included the 75% civil
fraud penalty - because that preparer did the same thing on
his/her own return as on the clients' returns in my sample!
My sample yielded 10 of 10 being adjusted, not including the
preparer's returns [multiple years].)

What seems more appropriate is that the project is really on
law enforcement officers claiming reimbursed expenses - and
that your client preparer simply has a higher percentage
than "average." I have seen some preparers that specialize
in certain types of clients (e.g. short haul truck drivers
from the Los Angeles/Long Beach docks) and things like that.

Are you certain that this is an RPP audit project and not
another type?

Considering California's budget problems, I can see where
state/local government offices may have shifted to making
their employees pay expenses out of pocket where they used
to have reimbursement plans. You may want to consider
informing the Taxpayer Advocate's office, especially if the
first 10 of these all "no change."

- quote -

One of the RPP cases my audit group was assigned turned out
to be caused originally by personality differences with the
preparer and an auditor at another office. My office got
about 12 returns in a sample (of which I got 1 -but I had
seen that preparer in audits not part of the project) and we
returned all them them indicating no indications of bad
preparation and only one had any adjustments at all. It can
happen that someone got pissed off at some preparer for some
reason not really related and wants to hassle them - I have
seen that once (but only once).

100 RPP returns may be a full month's order of case load.
200 of "regular program" audits is more typical for an
group of about 8-10 auditors, but there are so many other
things going on, ....

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Timothy E. Kelly, Esq. wrote:

- quote -

My guess would be that the apparent "strange" client mix may
have triggered the targeted exam--that is, it looked like a
return preparer who was inflating 2106 expenses. If the IRS
truly picked up random targeting as a technique, that would
be a quick route back to the 1997 hearings, and I don't
really think they want to go there. However, I could see
the computer getting programmed to flag returns based on
certain criteria, and the combination of just how this
person prepared the 2106 *and* the unusually high amount of
deductions perhaps triggering the selection of an inordinant
number of his clients.

But, that said, it seems unusual that the IRS would target
someone like this *without* CID being involved. Even buying
that the software kicked out the returns, you'd think
someone would notice an awful lot of the returns look
similar. Heck, if I (as the agency) believe someone is
crooked enough to fraudulently prepare that many returns, I
would think it would occur to someone that this is a good
criminal case and that to move ahead on the civil front
could jeopardize the criminal case.

As well, if it's not criminal, then the publicity that would
result from this getting out (IRS harassing police officers
just doesn't make for a good headline in local papers) would
not be good.

--
Ed Zollars, CPA
Phoenix, Arizona

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Timothy E. Kelly, Esq. wrote:

- quote -

The only person local to me who that happened to was a guy
known for saying, "And you had $500 of non-cash charitable
contributions, right?" while nodding his head vigorously.
AFAIK, the IRS just showed up one day and took all his
client files.

The IRS obviously thinks your guy was doing something
similar with regard to employee business expenses and
charitable contributions. FWIW, the guy here is still in
business ("All returns prepared on the first visit"), and
has newspaper clippings of the whole thing pasted on his
walls.

Phoebe

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Timothy E. Kelly, Esq. <tim[at]timkelly.com> wrote:

- quote -

I haven't seen anything that massive since the good old tax
shelter days of the late 1970's - and those returns
OBVIOUSLY had problems.

But, at the risk of appearing unsympathetic, I guess I don't
understand why this is such a problem. The clients either
have documentation for their deductions or they don't. The
time to have explained the documentation requirements was
BEFORE the returns were prepared (not AFTER the audit notice
arrives). If the preparer failed to do that, then, voila,
the IRS has hit "pay dirt." (Again, pardon my insensitivity,
but that's the way I see it.)

As to the clients, I would probably suggest that they
immediately respond to the audit notices and send the
requested information. Or, if they haven't a clue what to
do, request an additional 30 days to reply. And, lastly, if
the preparer doesn't think he can handle all this within the
specified time constraints, he owes that explanation TO HIS
CLIENTS, together with a recommendation that they seek
representation elsewhere should they feel the need.

If the IRS suddenly decided to audit 20% of my clients,
there is no way I could handle it all. But, my first concern
would be see that the clients were adequately represented
(by someone, if not me). I wouldn't worry about getting even
with the IRS (or pondering ~why~ this happened) until a bit
later. <g
MTW

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Timothy E. Kelly, Esq. wrote:

- quote -

While I have never seen anything like this. Could it be that
a fraudulent preparer has use you client's ss, ptin or ein
numbers. I f the facts in this case are as you indicate
perhaps contacting his congressman, but it could result in
another worthless form letter.

--
Frederick E. Jorden http://Tax-Accounting-Payroll.com
7825 Midlothian Tpk - 207 Richmond, VA 23235-5247 EMAIL knowtax[at]bigfoot.com
(804) 320-6210 FAX (804) 320-6211

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Timothy E. Kelly, Esq. wrote:

- quote -

Indeed this is downright scary! To select 20% of one's
clientele for mostly the same issue means it is not a
routine matter of so called random audits. SOMEONE,
SOMEWHERE, has an ax to grind, and that figuratively.

IRS at Austin had some reason to narrow their search down to
these 100+. My first reaction was that IRS CID was involved
until you said differently.

Tell me, do any of the form 2106's have a large deduction
for meal expenses?

Several years ago, the local police chief, my client at the
time, showed me a fax ostensibly from an IRS agent
somewhere, talking about how meals on duty were tax
deductible, and the cite was that famous Michigan state
trooper case back around .... 1986 or so. He asked how
much could he take? I said I'd have to check into it, that
as far as I knew meals for police officers were never
deductible. He was immediately incensed, and decided to
leave with all his tax information saying he'd check some
things over and get back to me. Needless to say he never
id, and I'm relieved, since his usual schedule A deductions
didn't always meet the "smell test."

So I'm wondering if this fax has made it's way across the
country from sea to shining sea? The Michigan case btw,
wound up at Supreme Court which allowed the troopers
deductions for meals eaten at road side eateries while they
were on duty and liable to have to run at a moment's notice.

That's my three cents worth. Please DO let us know how this
turns out.

Cheer$,
Harlan Lunsford, EA n LA (not in CA)

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I have been retained by a very frightened unenrolled
preparer. He has become the subject of a Return Preparer
program action. In a forty five day period, over one hundred
correspondence audits have been directed at his client base
of five hundred. He has no prior history with the Service,
just two no-change Schedule C exams in nine years. The
correspondence exams are directed at Form 2106 and
charitable contributions. They are from the Austin Campus.

I have looked at the returns, which are primarily California
law enforcement officers who receive taxable allowances for
expenses rather than reimbursement and therefore have
relatively high Employee Business Expenses (Form 2106). I
saw nothing extreme and some of the charitable contributions
being questioned are under $250. He is trying to help his
clients understand what substantiation is required but there
is a thirty day response window and he simply does not have
time to do it for so many exams.

His business and livelihood have effectively been destroyed
because of the relative closeness of his clientele, where
word spread quickly. I have sent letters to the Directors of
the LA Area and Austin Centers, the Taxpayer Advocate and
have filed FOIAs with both LA and Austin. I have been met
with a wall of silence meaning I will have to file suit on
the FOIA requests to get someone to talk to me. Most often
these cases will clog up appeals while some will go to
ninety day letters. I have never seen anything this heavy
handed before. In my discussion groups with other tax
attorneys I have found no one who has encountered this
methodology before either. I have represented half a dozen
tax preparers in program actions, and in each case they were
essentially guilty of something obvious like EITC fraud and
were trying to avoid jail. Not a one of them is preparing
taxes today because they were crooked and they were caught.
This client, however, is about as average a preparer as I
could ever find.

I called my contact in CID who told me that if this were a
CID based operation it would not be handled by a Wage and
Investment Division Correspondence Unit.

CPA's, EA's and preparers assume that if they are honest in
preparing returns, follow the law and otherwise maintain the
high ethical standards of their profession they will be
treated with respect by the Internal Revenue Service. Until
I took on this case, I also believed this, but now I am
skeptical.

My question for the group is whether anyone else has ever
encountered anything like this, where a regular preparer
with no obvious problems is targeted to such a degree that
his entire business is destroyed, and targeted in such a way
that he is unable to adequately assist his clients to answer
the demands of the Service because of sheer time
constraints. In other words, is this a new method of
compliance, since no office exam group could sustain a
sudden inflow of one hundred exams into their inventory
without a significant impact?

I welcome your input.

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

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