effi wrote:
- quote -

SB/SE can be very stubborn on the taxable nature of grants.
While the grant the OP referred to must not have involved
any actual personal services and was relegated to line 21, I
have handled two cases at appeals where in each case exam
could not come to grips with the fact the recipient of the
grant was an independent contractor providing personal
services with a Schedule C, subject to SE tax. In both cases
the position of the Service was so wrong I recovered
attorney fees.

Tim

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<JanZtax[at]aol.com> wrote:

- quote -

looks like the 2003 return was audited before the irs had
the 2004 return (not uncommon for irs to look at year before
and year after in an audit, 2002 and 2004 in this case)

filing an amended return is not in and of itself an audit
red flag

assuming the employee business expenses etc. for 2004 are
valid deductions and can be properly substantiated, and
everything else reported on the amended return is correct,
amending the 2004 return should stand up to irs audit, based
on the irs' treatment of the issues for 2003

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JanZtax[at]aol.com wrote:

\(snipped0
- quote -

(snipped)

A client told me again this year about her daughter and how
she "takes her taxes" to another preparer who duly reports
her child support payments on a schedule c and thereby
"qualifies" her for the rather hefty EIC.

Ah hah! sure! (grin)

ChEAr$,
Harlan

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JanZtax[at]aol.com wrote:

- quote -

Per circular 230 (THE BIBLE) you are only required to
advise client of the problem and let him decide. But you
knew that.

But still, that is exactly the way I would play the hand
dealt me.

Don't forget, however, that any penalties may be begged,
pleaded, advocated to be forgiven since client relied on a
professional for both returns. Accomplish that for both
years and your fee will , or may, be evened out by the
savings.

and you'll end up the heroine!

ChEAr$,
Harlan

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<JanZtax[at]aol.com> wrote:

- quote -


No problemo. Based upon my many IRS years, including
management of returns selection programs, the details behind
selecting (verses claims) add'l tax amendeds are N/A here.
Simply amend 2004, citing "based upon the results of the
2003 audit". IRS can see you didn't prepare 2003/2004, and
you represented on the 2003 audit.

IOW, "there ain't no education in the second kick of the
mule," as the expenses were ostensibly examined and accepted
on 2003, the 2% issue remained, which you reflect on amended
2004. Even if in doubt and selected by the Service Center,
the local office can and should first pull the 2003 return
with associated workpaper file and peruse, providing more
info than on computer-screen data seen by the Center. Should
be accepted as filed either way.

In fact, without a prior audit, IRS local office people know
local preparers, and can often thus see who prepared the
original and who did a 1040X which paid additional tax. ;-)

Reg,
Fred F.

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I'm looking for some advice re: whether or not to amend a
particular return. Am hoping to hear from someone(s) whose
past IRS experience/knowledge would help me decide whether
amending will make the return more or less likely to be
audited.

Taxpayer used a preparer (not me) who incorrectly listed a
$5,000 grant on schedule C and took about $15,000 worth of
employee business expenses against the grant. 2003 return
was audited by the SB/SE divison. I represented the taxpayer
at audit. All expenses were correctly moved by the auditor
to form 2106/schedule A and the grant income to line 21. Due
to the 2% haircut, client owes about $1200 and the audit was
very time-consuming and nerve-wracking for her (to say
nothing of the expense of my fee).

Taxpayer's 2004 return was prepared in an identical way. If
I were to amend it and take everything off the schedule C,
perhaps we could avoid an audit by SB/SE, even if she still
ends up with an audit. But maybe amending it will call even
more attention to the large amount of business expenses.
Would appreciate thoughts you have based on your IRS
experience.

Jan Zobel EA

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