What To Do When the IRS is Wrong Again

I just got off the phone with a family child care provider from Alaska who is being audited by the IRS.

The child care provider told me that the auditor would not allow her to deduct the following items: dining room table and chairs, beds the children sleep on, and her computer that is used for business and personal purposes.

The reason? The auditor said she couldn't deduct such items unless they were used exclusively for her business!

How should you respond when confronted by a statement from an IRS auditor (or tax professional) that seems wrong?

First, ask the auditor, "Where does it say that?" Just because the auditor says something is true doesn't make it true. Ask the auditor for something in writing to support his position, such as the IRS Tax Code, an IRS publication or a Revenue Ruling. Without written authority, the auditor is on shaky ground and you should continue to argue your side. Don't accept unsupported assertions.

Where does it say that a child care provider can't deduct an item unless it's used 100% for her business? Nowhere!

Next, find out if there is something in writing that supports your position.

Section 162(a) of the IRS Tax Code says, “There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or business…”

The IRS Child Care Provider Audit Technique Guide says: “It is important to stress the fact that having a personal usage element present does not disqualify the property from being a deductible IRC Section 162 expense.”

It can’t get much clearer than this: the IRS auditor is dead wrong.

I told the child care provider to tell her auditor to read this IRS publication. That should be the end of it.

If, for some reason, the auditor won’t change his position, I told her to talk to the auditor’s supervisor.

It’s important that IRS auditors (and tax professionals) understand the unique tax rules affecting family child care providers. Unfortunately, this isn’t always the case. When this happens, you may need to educate the person about these tax rules.

This child care provider should easily win her case.

Tom Copeland – www.tomcopelandblog.com

Image credit: https://www.dreamstime.com/photos-images/joy-jump.html

For more information about how to handle an IRS audit, see my book Family Child Care Record Keeping Guide.