Discussion:Ethical? Cast your vote!

CAST YOUR VOTE!

So, let's analyze this. Your client has a loss of $5k from his business. If it were not for the EIC, he would surely report all expenses he is able to (regardless of whether that receipt is in the file or not). Hmmmm. So now we have EIC and the potential for more money if he reports income when in fact he had a loss.

Well, in my book that would not be ethical.

This is obviously the same gentleman you wrote about yesterday. I note 'Contract labor' which could be payroll, interest which might be mixed use of a credit card, and the fact that apparently he has no other source of income.

Section 179 is an election. You are not required to elect that treatment. Don't confuse that issue with what you are proposing. You are proposing taking a position which is contrary to stated authority - I see no way you could argue against the preparer penalty under §6694.

Follow Death&Taxes link and read Riley2's response closely. Riley2 is a TaxAlmanac guru here and when he speaks, we listen.

Here is the link to CCA 200022051 that NYEA referred to: [1]

It's pretty clear on page 3 what the Service will do if you don't take all the expenses. They will.

Disregarding deductions in this case, isn't a great idea. This is why the EITC rules are different. If you doing it in an attempt to "defraud" the government, that is looked upon differently, than if you choose not to take expenses for various reasons.

Basically, the client doesn't qualify for the EITC, from what you say. If he doesn't qualify, then he doesn't and move on.

Don't be foolish. Further, I doubt you will look good in prison orange.

I join Natalie, JR1, D&T and vote NO.

Tom

Ooops, here it is: http://www.jumpstation.ca/recroom/comedy/python/nudge.html

Just how far must you go to prove, look into, research, a possibly valid expense in this particular circumstance?

Great sketch!

And now for something completely different, the 16 ton weight will drop on your head for being stupid to think you qualify for EITC!

Tom

It is hard to compete with a guy who will cheat.  The only way to compete is to get him off the street.  So there's my fire for your two little feet.

I have never done this before and, after reading your responses and sources, will continue to make it my practice to not reduce deductions for the purpose of receiving the EIC. THANK YOU for helping a fellow tax guy not to be led astray by others who are obviously less informed.

"Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one's taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands."

CCA 200022051 is clearly the law, so you're required to act in its accordance, but with respect to elections, as Judge Hand said, you can make LEGAL elections to lower your tax burden - case in point: the 179 election.

jerry

Natalie is correct that the original post asked it was "ethical."

You've only been here since August of 2008, so let me point out Natalie is one of our great contributors. She knows what she's doing.

Tom

She was possibly referring to Jerrykern and not you. Look at it again.

Tom

As I said, Natalie is one of our great contributors. I do consider her a friend as I do some others here. While Natalie is quite capable of defending herself, I stick up for my friends. Someday, I will do the same for you.

It's that simple.

Tom

That's fine. It's over as far as I am concerned.

Let's move on.

Tom

First snowfall of winter here tonight so I guess that's my cue to really start gearing up for tax season and that means hanging with my TA friends. So, I'm baaaaaack.

Tom, glad to see you out and about. I hope all is well.

DT - Pontificating I was? Very interesting choice of words. And yes, I do like this little discussion/argument ethical/unethical topic.

I must say that NYEA's listing of CCA 200022051 is the first actual evidence that specifically states you have to use all allowable deductions. All of the other arguments listed nothing that said hard and fast what the CCA 200022051 does. My thought process has been altered for the moment.

With that being said, the focus then shifts to "what are allowable deductions" and then what about deductions that are elections.

the CCA thingie talks about adding back expenses for EIC purposes that the taxpayer may have left off. Discusses unsubstantiated deductions.

I understand the thought process behind this, but the double standard bothers me. If you have a client come in and they tell you they spent $20,000 on supplies/expenses and they have no receipts and paid cash, you'd tell them they are idiots and that you aren't deducting them on the tax return. Now, after doing the tax return, you find they are in an EIC situation. Should you then re-do the tax return, adding in these unsubstatiated expenses?

Now, same situation, as above, if you were to take the $20,000 in unsubstantiated expenses this now reduces their income to put them into the EIC bubble. Would the IRS come in during audit and then force them to take the deductions and thus qualify for the EIC. That's the issue I have with that ruling, would the above scenarios be treated the same.

What about a salesperson - never kept mileage log, but taking mileage would change EIC status, by either putting client into the EIC bubble or taking them out, would this unsubstantiated expense be treated the same.

K, on to elective deductions - No problem taking or not taking these?

Take the Business use of the home deduction - this is a deduction that is not required to be taken but it could be taken. Should the taxpayer be forced to take this expense if it reduces their income below the EIC guidelines?

Same thing with Section 179 and various ways to depreciate things. Elections, allows us to manipulate bottom line income. Not unethical to do in my opinion. I totally agree that we should prepare accurate returns, but I also have no problem preparing a gray area return that is defendable in court.

We have no problems using loopholes and gray area tax planning for high end clients, helping them save thousands of dollars, but it's a different story when it's done for the lower income client who is maximizing their bottom tax line. I'm not talking about the out and out fraud where people are just creating Sch C's for the sole purpose of moving into the EIC area, but for the hard working poor who through the use of elections, can take advantage of the EIC.

I don't think that is unethical and never will.

Oh, and it's good to be back.

We get paid by the clients so of course we do everything to serve them as best as we can. Sometimes they are happy, sometimes they are not. What matters is that we keep them (and ourselves) out of trouble.

YIPEEEEEEEEEEEEEEE!

Now will you please get back into the race?!

Tom

One thing I will always rail against and that is the thought that we are the arm and the agents of the taxing authorities. That is and never will be the case. It is by it's very nature an adverserial position. It is a chess match that must be played within the rules. Those rules though are often subject to different kinds of interpretation.

Just my thoughts, which btw, do tend to wander in many different directions.

And Tom, is it acceptable to vote for a candidate simply cause I want to fantasize about the VP?

Tom

NOOOOOOOOOOOOOOO!!!!!

That is a frightening image!

Tom

Not taking the proper deductions affects not only the EIC but home office deductions (not reporting all expenses may make HO deductions usable whereas a negative income will cause certain of the expenses to carry over). Don't do it.

I am surprised that no one is debating the morality of the EIC itself! :D duck and cover baby! ;-)

Michael

179 vs deprec - election

showing all expenses and revenue - not an election

Home office inclusion or not - election? by excluding the home office EIC goes up.

Again, I don't like the EIC abuse but for legitimate tax filers, it is my job, my role, my responsibility to legitimately maximize their tax position.

Again, I still have an issue with the regs where they can arbitrarily add expenses back in without documentation yet not allow the deduction if you've lost the documentation.