<hlunsford[at]bellsouth.net> wrote:
- quote -

His advice would still be wrong because I was in active
business at the time and for several years afterward. I had
income from that business up to and including 2005. I still
may do some consulting if the opportunity presents itself.

As a second point:
The code also says that once you make an election, you are
not allowed to change it. Having made the expense election
in the first place, I would be obligated to stick with it.
That's another thing that the IRS should have caught when I
amended my returns in 2001.

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

G Burton wrote:

- quote -

I hate to tell you this, but if you are NOT in active
business, then all costs of patents are to be capitlized.
Hence you got the right advice from the EA and the first IRS
agent.

Pub 535 is for business expenses during the active conduct
of a trade or business.

ChEAr$,
Harlan Lunsford, EA n LA

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

I am wondering if I should request special permission from
the IRS to amend old returns or to make some other
disposition (such as the capitalization of lost deductions.
Below is a copy of the supplement I sent to the IRS with my
amended returns, which explains the story. I deleted the
names of the IRS agents I talked to.

=================== Text of the supplement
I was awarded a patent in 1996, for which I had been
deducting legal expenses, filing fees, and maintenance fees
until 2000. Then in 2001, I had my taxes reviewed by an
enrolled agent who gave me some very bad advice. He told me
that I had to capitalize those expenses, and could only
depreciate them after the patent was sold. That did not
seem right and I was skeptical, so I checked with the IRS in
February of 2001 and talked to [name deleted]. She agreed
with the enrolled agent. As a consequence, I amended my
1998, and 1999 returns and delayed the filing of my 2000
return to back out all of those expenses. I also included a
detailed explanation of what I was doing (and why) when I
filed the amended returns. The IRS processed those amended
returns without comment.

I recently discovered that both the EA and the IRS
representative were wrong, and the amended returns should
not have been processed. See pub 535, p. 27.

Please understand that I did everything in my power and all
that could be expected of a taxpayer to avoid this kind of
situation - including doing it correctly in the first place
and trying to verify my information. This error is costing
me thousands of dollars (which I cannot afford) because the
rules do not allow me to amend the 1999, 2000, and 2001
returns.

After discovering the problem, I once again made a couple of
calls to the IRS. They referred me to the Taxpayer's
Advocate office, and I talked with [name deleted] on Feb 30,
2006. This time, the IRS representatives (and the advocate)
agreed with my original election to expense the patent
costs. I was told that I could petition the IRS for
special permission to amend older returns, but the taxpayer
advocate told me that the likelihood of success were very
small.

Therefore, I am amending my returns as far back as I can (to
2002) to take legitimate deductions for the patent expenses
that I occurred during those years.

=================== End of supplement

Should I approach the IRS with a request for special
consideration, or would that be a waste of time as the
advocate implied?

If so, what would be a reasonable request to try to right
this wrong?

--
Gary Burton

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >