Discussion:Personal Living Expenses (PLE)
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| Revision as of 18:40, 8 October 2009 Cobbcpa (Talk | contribs) (A huge thank you) ← Previous diff |
Revision as of 19:15, 8 October 2009 Southparkcpa (Talk | contribs) (During an audit) Next diff → |
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| {{ForumReplyPost|UserID=Cobbcpa|Date=8 October 2009|Text=A huge thank you to all of you!}} | {{ForumReplyPost|UserID=Cobbcpa|Date=8 October 2009|Text=A huge thank you to all of you!}} | ||
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| + | {{ForumReplyPost|UserID=Southparkcpa|Date=8 October 2009|Text=During an audit last year, a client was asked to show all bank statements personal and corporate, NOT just the business account. | ||
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| + | The auditor was clearly looking for unreported income but did not ask PLE questions. | ||
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Revision as of 19:15, 8 October 2009
Discussion Forum Index --> Advanced Tax Questions --> Personal Living Expenses (PLE)
Discussion Forum Index --> Tax Questions --> Personal Living Expenses (PLE)
| 6 October 2009 | |
| My Schedule C client is being audited for a business loss in 2007. The business was in its first year. My client also had a $100K job during the year.
It's an office audit, and the auditor is looking for unreported income. As everyone knows, the IRS is focusing on taxpayers who show Schedule C losses that will offset their other income, because the taxpayer may have just pocketed the cash. The auditor believes this industry is one that is known for cash payments. As one of the audit steps, the auditor is asking the client to make a list of all of her monthly living expenses. The auditor provided a list of items to include in the list. She called the list the PLE, or the Personal Living Expenses exercise. The auditor sounded as though she'd plug the numbers into IRS software to determine if they were reasonable. There have been no indications to me of unreported income. The client lived within her means. The business was bona fide and it was very profitable the following year. Regarding the personal living expense exercise, besides the obvious fact that the expenses shouldn't be greater than cash received, are there any other things to be aware of? How much can an auditor rely on this exercise, if there are no other indicators of unreported income? I haven't found anything about talks about the PLE issue in my research. Don't want to make it too complicated, but don't want to be naive either. Thank you for your wisdom. | |
| 6 October 2009 | |
| well, obviously the auditor is trying to figure out whether the taxpayer could afford to live as he did with such a loss. Not whether the expenses were reasonable, but how did he pay these expenses if he had a loss?
1) you want the expenses for the year at issue, not now (he may have lived on mac-'n-cheese & Raman noodles that year, not filet mignon and escargots-Rockefeller). 2) It seems odd that they will use actual expenses for this, but national and local standards for collection (hint - look at the collection standard living expenses as a guide). 3) There is always the fact that the taxpayer had cash at the beginning of the year which he used (savings account), credit card or other borrowing (do we tell clients to keep all of their statements?) or other non-taxable sources of money. Maybe he got behind on his house payment or other bills. Look at his actual check register to figure this out. 4) You would want to use the Cash T analysis before turning anything in - the client will be hung by his tounge, so be careful what info you volunteer. | |
Death&Taxes (talk|edits) said: | 6 October 2009 |
| Cobb: how much was the loss? 100K of salary with a 5K loss is not suspicious, but 100K with a 25K loss might be, especially if Sch A shows a large mortgage deduction.
If the loss is not large, it could also be that this examiner is only following a procedure. | |
| 6 October 2009 | |
| The question asked is how did the t/p afford to live? Is the income and expense reasonable? | |
Southparkcpa (talk|edits) said: | 8 October 2009 |
| During an audit last year, a client was asked to show all bank statements personal and corporate, NOT just the business account.
The auditor was clearly looking for unreported income but did not ask PLE questions. | |
