IRS Audits Archives

From Commingled to Contested: The IRS’s Audit of Tax Deductions

The common idea that business expenses are deductible while personal expenses are not is an oversimplification. In reality, the tax rules are more nuanced. Some personal expenses are deductible, and the line between personal and business expenses is often blurry. This complexity is further compounded by the fact that many businesses, particularly small ones, fail…

Dealing With IRS Audit of a Hobby Loss Activity

The IRS is a silent partner in every business venture. It is quick to take its share of profits when a business venture succeeds. The IRS is often not a good business partner. It often refuses to share in the losses during the down times. This unequal treatment often comes up when the taxpayer reports…

The Rules of the Game: Burden of Proof in Tax Disputes

Every relationship has rules, whether informal or formal. Every human interaction has them too. One can easily see this in forced relationships. Take organized sports, for example. Organized sports are essentially pre-planned interactions governed by specific rules that all parties agree to follow. The effectiveness of the rules hinges on proper enforcement, which often requires…

The Balancing Act: Records Needed for Tax Positions

The Goldilocks Principle says that the best outcomes are achieved by finding a balance. It looks for the “just right”—neither too much nor too little. This concept applies not only to storytelling but also to tax recordkeeping. Taxpayers have to strike a balance in maintaining records that are thorough enough to satisfy the IRS but…

When the IRS Fails to Timely Respond: Who Pays?

The IRS, like many organizations, faced significant challenges during the COVID-19 pandemic. It had to adapt to new working conditions, which led to delays in processing paperwork, including tax returns, and difficulties in responding to taxpayer inquiries. During this time, when a taxpayer could reach someone at the IRS, they were often told that due…

Third-Party Liability for Repaying Employee Retention Credits

Many businesses outsource their human resources to third parties called Professional Employer Organizations (“PEOs”). PEOs are particularly popular with small businesses. The benefits of using a PEO include allowing the business to focus on its business operations rather than HR activities and giving employees access to better employee benefits. This is achieved by having the…

Using Estimates to Prove Business Expenses

Imagine this common scenario – you own a small business and incur a legitimate expense that you pay and have some record of. Years later the IRS audits and disallows the deduction for lack of receipts or other documentation. The auditor may request bank statements, which you provide, only to be told those are inadequate.…

Blunt Truth: Paying Taxes on Illegal Income

When a taxpayer makes money from something like selling marijuana, they still owe taxes on that income. The law requires the marijuana profits to be reported for income tax purposes. This type of income is usually only reported and tax collected if the IRS catches wind of the illegal activities. This is often limited to…

Taxpayer Loses for Tax Court Petition Filed 11 Seconds Late

The voluntary nature of income tax returns in the United States means that taxpayers are responsible for reporting their income and paying the appropriate taxes. Taxpayers do this largely as it is the right thing to do. This is premised on a perception that the tax system has some elements of being fair and uniform…

Tax on Funds Received as an Intermediary Conduit

As tax attorneys in Houston, we often see investments made by local ethnic communities that are focused on investing overseas or raising money from overseas. This often involves those who immigrate to the U.S. from foreign countries, and do well in the U.S. financially. The investments are often made based on direct knowledge of opportunities…