When You Go To H&R Block With Self-Employment Income

[BobKamman]

From a Tax Court decision today – taxpayer is from Georgia.

Since 1995 petitioner has been working as a freelance writer, writing movie reviews. In 2019 petitioner received $8,250 from freelance movie review writing. Additionally, since at least 2019 petitioner has bought and sold movie-related memorabilia. Petitioner sold the memorabilia on eBay, and his sale proceeds were paid to him through a PayPal account solely in his name. In 2019 petitioner received $41,972 from selling movie-related memorabilia, and PayPal sent the IRS and petitioner a Form 1099–K, Payment Card and Third Party Network Transactions, reporting the $41,972 as the gross amount of payment card/third party transactions for 2019, with no amount of federal income tax withheld.

Petitioner prepared his 2019 federal income tax return with assistance from a representative at an H&R Block location. Petitioner did not report any of the income he received from freelance movie review writing or selling movie-related memorabilia on Schedule C, Profit or Loss From Business; instead, he reported that income (totaling $50,222—the $8,250 from freelance movie review writing and the $41,972 from selling movie-related memorabilia) as “[o]ther income” on line 7a of the return, not subject to self-employment tax. [Comment:  So no "cost of goods sold" or shipping costs?]

At trial petitioner appeared sincere but seemed a little confused as to the tax treatment of the income he admitted receiving from freelance movie review writing and selling movie-related memorabilia in 2019. To be sure, his sophistication regarding federal income tax matters is rather limited in the light of his educational background, but he has been in business for himself over 30 years and indeed he acknowledged at trial that he always just pays the penalty for failure to pay estimated tax when he files his return each year (as he did for 2019). He also stated that H&R Block prepared his 2019 return, but that statement alone does not show that he actually relied on advice from a tax professional during the preparation process. Accordingly, we find that petitioner failed to present persuasive evidence of a cognizable effort to assess his proper tax liability or reasonable cause for the error [so the IRS assessment of 20% negligence penalty was also upheld].

[rcooley25]

Best Idea when going to H     and R Block wwwwwwith any income is this. When you get to the door turn AAROUND AND DONT go in.

[IRonMaN]

Out of curiosity, was that H&R employee on the short list of potential nominees to be the next IRS Commissioner?

[rcooley25]

It would not suprise me.