Tuesday, January 10, 2012

The ‘Of All People’ Case


Was there a full moon on 1/3? Taxpayers were assessed the deficiency plus the extra penalty for drastic understatement because they failed to keep adequate records and properly substantiate the flight lesson expenses they claimed. The taxpayers were a couple that included a highly compensated CPA employed by a corporation AND a 20 year financial planner/commercial realtor with an MBA. They claimed that A) they did not know they needed to keep receipts for business deductions and B) their tax preparer told them they did not need to keep receipts. They should be ashamed of themselves! The court noted humorously that they were “skeptical” of their “alleged” lack of knowledge. Tee hee.

Take Aways:

• This is why CPA firms must now require an engagement letter in order to prepare a tax return. You’d think that a couple with these credentials would not try to dishonestly throw you under the bus to save a few thou but, sadly, this is the world we live in currently!

• To deduct education costs the course must maintain or improve your skill for your current position only. The court was not convinced that pilot skills go hand in hand with being a commercial realtor. Even though the TP did submit evidence that he used aerial photos in sales brochures he created, the court noted that he was able to obtain these in the past without actually needing to know how to pilot a plane. Doh! (They admitted he did not make an effort to persuade them so who knows what would have happened if he had?)

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