Discussion:Deminimus Rules IRS Audits
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Discussion Forum Index --> Tax Questions --> Deminimus Rules IRS Audits
| 3 April 2008 | |
| My client is having an audit of his business. One of the areas of weakness I see is the petty cash. The total expense is 78000 . Total income is almost 4mil.
He is missing a lot of receipts due to the fact that some of the expenses are very small . My question: Is their a rule that you do not have to keep receipts if it is a deminimus fringe benefit. My client also gives a lot of money in tips. the floor cleaning guy, delivery men etc. He has no receipts? How will this stand up in an audit if it is questioned? | |
Nancyshoemake (talk|edits) said: | 3 April 2008 |
| unless he has either a receipt or a detailed ledger documenting these deductions (log showing date, time place amount and purpose) I think he will be out of luck. Generally, with petty cash....he should have on hand a receipt book showing what he paid and having someone's signature showing receipt of the money.
Hope that helps. | |
| 3 April 2008 | |
| 78,000 is not petty cash in my book - and petty cash is always reconciled at the end of every period by the knowledgeable bookeeper or accountant, so it appears that some sloppy work was done and it looks like no deduction without records. | |
| 3 April 2008 | |
| Petty cash is not an expense, it is a fund. The account should be reconciled every time it is replentished and the amounts charged to real expenses such as office supplies, employee meals, postage and shipping, etc. What you have is a big slush fund and everything not supported by a receipts will be disallowed. | |
| 3 April 2008 | |
| Yes Kevin I agree this is really not petty cash it is store expenses paid for in cash.My client just throws the receipts in an envelope. Most of these are real expenses. I just read in CCH master tax guide that if an expense is under 75 you do not have to produce a receipt or a paid bill.
Par 953. Substantiation Requirements | |
| 3 April 2008 | |
| you're not going to quote CCH as an 'authority' are you?
the reason you don't 'need' a receipt for an item under $75 is because you have a contemporaneous written note of what the expense was for in this guys case, no note/no receipt = no deduction | |
Southparkcpa (talk|edits) said: | 3 April 2008 |
| I agree with Kevin, deminimis ??? Doesn't sound DeMinimus.
Sounds like you should prepare your client for a decent IRS adjustment. In my practice, when I see clients code checks to Petty cash I have a good talk with them about THEIR responsibility and the possible results if audited. | |
| 3 April 2008 | |
| Perhaps $78,000 is DeMinimus to this High Roller - Keep No Recrods - Client. So the Tax Assessment of $50,000 may not bother him, as well. | |
Nancyshoemake (talk|edits) said: | 3 April 2008 |
| truckers are notorious for saying they pay expenses in "cash" for unloading and loading of the truck at the various locations throughout the country. This week I had a trucker who pays in cash BUT had a written receipt with a signature of each person he paid in cash showing the location, date, services provided and amount WITH the signature of the person he paid. Although it is still uncomfortable if there would be an audit - it sure is a heck of alot better than his word and a calendar with contemporaneous records. | |
RoyDaleOne (talk|edits) said: | 3 April 2008 |
| Is there a set dollar limit on the value of de minimis benefits?
No. Whether an item or service is de minimis depends on all the facts and circumstances. In addition, if a benefit is too large to be considered de minimis, the entire value of the benefit is taxable to the employee, not just the excess over a designated de minimis amount. The IRS has ruled previously in a particular case that items with a value exceeding $100 could not be considered de minimis, even under unusual circumstances. Return to List of FAQs
Can cash ever be a de minimis fringe benefit? Cash is generally intended as a wage, and usually provides no administrative burden to account for. Cash therefore cannot be a de minimis fringe benefit, with one exception: Occasional meal or transportation money to enable an employee to work overtime. The benefit must be provided so that employee can work an unusual, extended schedule. The benefit is not excludable for any regular scheduled hours, even if they include overtime. The employee must actually work the overtime. From the IRS. | |
| 4 April 2008 | |
| Pay the new tax assesement out of the petty cash draw. There should be enough $$$ there. At least this time they will have a receipt. | |
| 4 April 2008 | |
| Just explain to the auditor that the recordkeeping is de minimis. | |
