Why did the IRS add the question to F2106 about whether you have evidence to support your vehicle deduction? Answering truthfully for most taxpayers would be an invitation to audit right?
If they don't have evidence, how can they claim a deduction?
Or are you referring to the Is the evidence written question?
Regardless, taxpayers have always been required to be able to support deductions claimed on their returns, whether there is a specific question about it on the return or not.
Rick answered when. If you really did mean why, I'd guess IRS found high noncompliance upon audit of auto expense.
Return with us now to those thrilling days of yesteryear, when Congress wanted to make life a little easier for taxpayers, who could still claim deductions later disallowed by the aptly-named "Jobs Cut and Tax Increase Act" of 2017.
Specifically, go back to May of 1985 and PL 99-44. The conference report explains:
"Amends the Internal Revenue Code to repeal the requirement that contemporaneous records be kept to substantiate tax deductions for certain business expenses, including automobile expenses, business entertainment expenses, and expenses for gifts. Requires taxpayers to supply adequate records or sufficient evidence corroborating the taxpayer's own statement to substantiate these deductions. Repeals the requirements imposed on tax return preparers with respect to informing taxpayers of certain recordkeeping requirements. Repeals the negligence penalty with respect to underpayment attributable to failure to meet the substantiation requirements. Repeals the regulations issued to carry out such provisions....Requires the Secretary of the Treasury to prescribe regulations by October 1, 1985, to carry out this Act."
So this is sort of like the hobby-loss rule, which was enacted to help taxpayers by letting them win their case with a profit in two years out of five, while not allowing IRS to win even if there were losses ten years in a row. What was repealed by amended Section 274(d) was the requirement for contemporaneous written records. Those are still best practice, but taxpayers don't lose just because they don't have them. The question on tax forms must intimidate a lot of people, though.
But as @IRonMaN suggests, once it's entered on a tax return, it's a written record, right?
My engagement letter states clients are required to have their information documented though not required to provide to me unless I request. So when they tell me the miles, I assume they have it in writing and check the box. Curious during a live preparation though, how some may hide the amount on my ceiling.
If they don't have evidence, how can they claim a deduction?
How? a number is told to me and I list it. To defend it is another matter.
Or are you referring to the Is the evidence written question?
yes, this question is interesting to me too.
Regardless, taxpayers have always been required to be able to support deductions claimed on their returns, whether there is a specific question about it on the return or not.
Since support is required then it is odd that the IRS asks taxpayers to self-incriminate.
I know a client won't file 1099s despite my advice, should I answer No to the question on Sch. C about intention to file them.
@Strongsilence-CPA "Since support is required then it is odd that the IRS asks taxpayers to self-incriminate."
Nothing criminal about not having written documentation. That's why there are two questions. Now, if the answer to "do you have evidence" is "No," we can talk about sanctions.
I know a client won't file 1099s despite my advice, should I answer No to the question on Sch. C about intention to file them.
Yes I would answer No.
thank you.
Thank you.
@Strongsilence-CPA wrote:
I know a client won't file 1099s despite my advice, should I answer No to the question on Sch. C about intention to file them.
It doesn't ask about intention. It asks if they have been or will be filed.
Sure, the client "will" file them ... as soon as they are audited for not filing 1099s. 😂 🤣 😂
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