You’re Fired! The story of an IRS auditor!!

Nobody really likes paying taxes. Sometimes, even the folks who work for the IRS resent paying the taxes that go towards funding their own salaries. Usually they just grumble about it and then go on with their day. But sometimes they try a little “self help.” So now let’s look at what one auditor did when she wanted to minimize her taxes.

Jacynthia Quinn spent 20 years as an IRS auditor in El Monte, California. The IRS audited her and her husband for 2006 (when she claimed $23,549 in charitable deductions and $22,217 in medical expenses) and 2007 (when she claimed $24,567 in charitable deductions and $25,325 in medical expenses). The Service disallowed those charitable and medical deductions, among other write-offs, and the case wound up in Tax Court.

You’d think an IRS auditor would be the first to know how to avoid an audit! So, how did Quinn do on the other end of the hot seat? Well, let’s look at those charitable contributions first:

“Petitioner proffered ‘receipts’ purportedly confirming charitable contributions. They were inconsistent and unreliable. Representatives from seven different charitable organizations credibly testified that the receipts were altered or fabricated. For example, petitioner offered a receipt purportedly substantiating $12,500 of charitable contributions to a religious organization. The purported receipt, however, identified individuals other than the couple as the donors. The organization’s records did not reflect any contributions made by the couple and confirmed that the other identified individuals had contributed $12,500.”

That doesn’t sound good. Bad enough if one donor testifies your receipts are faked. But seven? How about those medical deductions? Any better luck there?

“Petitioner similarly failed to substantiate the claimed medical and dental expenses. Some of her documentation also suffered from authenticity problems and appeared to have been ‘doctored.’ Petitioner offered three documents purportedly issued by Dr. Christopher Ajigbotafe or his staff confirming more than $9,000 in medical expenses for Mr. Quinn. Each document, however, spelled the doctor’s last name differently (‘Ajigohotafe,’ ‘Ajibotafe’ and ‘Ajigbotafe’). One ‘statement’ was dated in January 2006 and estimated expenses for the upcoming year. The amount of expenses for 2007 contained in another ‘statement’ was contradicted by a letter purportedly from the doctor’s staff.”

Keep in mind here that Quinn is an IRS auditor, with 20 years of training and experience auditing exactly these sorts of deductions! Naturally, the Tax Court didn’t show her a lot of sympathy — they sided with the IRS on every issue and even smacked her with a civil fraud penalty. In fact, the IRS Restructuring and Reform Act of 1998 requires the IRS to fire any employee who willfully understates their federal tax liability (unless they can show the understatement is due to “reasonable cause” and not “willful neglect”). Since Quinn’s own “excuse” is on a par with the dog eating her homework, she’s likely to lose her job as well.

It’s certainly entertaining to read about cases like Jacynthia Quinn’s. It’s satisfying to see a cheater get her comeuppance. And it’s great to see the IRS enforcing the same rules for its own employees as it does for us. But there’s a valuable lesson here, even for the majority of us who don’t cheat. Dotting the “i’s” and crossing the “t’s” is important for everyone. That’s why we don’t just outline strategies and concepts to help you pay less tax. We work with you toimplement those strategies and document them to survive scrutiny. And remember, we’re here for your family, friends, and colleagues too, so give us a call: 773-728-1500.

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Photo from Nouhailler on flickr.com

Income Tax Tip: Save money by deducting mileage expenses

Don’t miss out on tax savings this year by forgetting about tax deductible travel expenses. There are four cases in which you may deduct your travel expenses. In each case, if you drove, you may deduct a standard rate per mile. If you took another form of transportation, the actual fare for a taxi, bus, or train may be deducted.

  • BUSINESS: Business miles are those driven for business, other than your daily commute. If you are travelling out of town, or even nearby for a meeting, conference, or seminar, you may deduct these miles. If your principle place of business is a home office, you may deduct miles driven to and from other work locations.
  • MEDICAL:  Qualifying miles are those driven to medical or dental appointments occurring in order to prevent or alleviate a physical or mental defect or illness. This includes miles driven to and from doctors, dentists, surgeons, chiropractors, psychiatrists, psychologists, and more.
  • MOVING: Moving expenses may be deducted if the move is for business purposes. For moving to qualify, the new residence must be located fifty miles or more closer to the new place of business than the old residence.
  • CHARITY:   Travel expenses that necessarily arise while performing services for a charitable organization–such as through volunteer work or as an appointed representative of a religious institution–are considered charitable and thereby deductible. This applies whether you pay the expenses directly or indirectly (by contributing to the organization) as long as the trip is not significantly for recreation or vacation.

Using the most up-to-date mileage rates will help you get the biggest deductible possible from your 2011 tax return. Standard mileage rates are used to calculate the deductible costs of driving a vehicle for business purposes, charitable purposes, medical purposes, or for moving over 50 miles for business purposes.

For cars, vans, and pick-up trucks, the mileage is:

55.5 cents per mile for business miles

23 cents per mile for medical or moving

14 cents per mile for charitable organizations

These mileage rates were given on July 1st, 2011 by the IRS for the mid-year adjustment. The IRS recently came out with the mileage rates effective January 1st, 2012, and they are the same as the current rates.

These tips come from your favorite Chicago accountants at TaxCutters, Inc.  Feel free to call us at (773) 728-1500 or email info@taxcutters.com for more information or tax help.

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