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IRS agents represent the
interest of our government. They are not there to help you, even
if the agent should state otherwise. The IRS's definition of having
their examination agents "helping" taxpayers is not what most taxpayers
consider "help."
The IRS has declared
"war" on sloppy record-keeping day traders and they are ramping up field audits and office
audits of daytrader's tax returns, especially those where taxpayers
negligently failed to attach a list of each securities transaction as is
required.
With support from the National
Office the IRS has at their disposal the means to attack from years of
Tax Court cases won by the IRS. (The tax court cases won AND LOST
by the IRS are discussed in the
TradersTaxPlan)
Often it is the "helpful innocent admissions" by taxpayers in the first communications with the
IRS that peg-hole them as "tax abusers" and your case is lost even before you
even start!
Warning:
Do not speak to the Internal Revenue Service. Eventually it will
likely cost you more than you might ever realize could be possible at
the time. Doing a tax return by yourself is one thing... trying
to respond to a direct IRS inquiry is totally different.
You will not be helping yourself. You will not be
saving yourself trouble in the long run. You will not be
making the job easier or any less expensive for your professional
representative by "helping out" by "just talking"
with the IRS to see what they want. You will actually be making
your representation more difficult and the professional fees to lay
out a proper representation on your behalf will be higher.
IRS Manual tells agents how to spot
improper pastime deductions.
The latest 2009 "audit technique guide" covers
the application of what is known informally as the "hobby-loss rule."
This is the Internal Revenue Code provision--Section 183--that prohibits
taxpayers from reducing their taxable income through losses generated
from activities...
The hobby-loss rule comes into
play primarily when a taxpayer claims a loss on his tax return's
Schedule C for a questionable activity and that loss is then used to
offset other taxable income--like from a day job or from passive
investments. What can draw the most IRS scrutiny are claims of big
losses for several years in a row.
The manual suggests that agents attempt an
end-run around a CPA or other tax adviser that a taxpayer might bring to an audit
interview. "Direct the questions to the taxpayer," it states.
Higher profile occupations include:
| Fishing |
Horse Racing |
Bowling |
| Farming |
Motorcross Racing |
Auto Racing |
| Craft Sales |
Professional Gamblers |
Fishing |
| Dog Breeding |
Yacht Charter |
Artists |
| Photography |
Stamp Collecting |
Bowling |
| Direct Sales |
Horse Breeding |
Writing |
| Entertainers |
Airplane Charter |
Rentals |
http://www.forbes.com/2009/07/10/irs-taxes-hobbies-personal-finance-hobby.html
Click here to learn from the "horror stories."
Click here first to discover why you should retain
us to represent your interests before the Internal Revenue Service.
IRS announces examination targets for 2005:
74% or resources will go to their Small Business / Self-Employed
Division [SB/SE]
targeting in order of priority:
tax avoidance transactions
high-income / high risk taxpayers
high-income non-filers
unreported income cases
criminal examination workload which includes:
corporations
S corporations
partnerships
IRS to expand the SB/SE Pilot project for Fast Track Appeals (announced
May 3, 2007) Cities on the East and West coasts to be added.
Tax Audits are hitting unprepared traders
The
IRS National Research Program
NRP or
TCMP
audits ran from late 2002 through mid 2003. If you haven't been selected by now, breathe a sigh
of relief!
"Aggressive Tax Deductions" as suggested on
internet sites nets taxpayer up to 103 years and his accountant five
years and a $250,000 fine.
Criminal Statutes used by the IRS are listed at this web site.
Have YOU been contacted by
the IRS?
If you have already been contacted by the Internal Revenue Service
about your Trader Status filing or your Mark-to-Market election, it is
generally a good idea to immediately obtain professional
representation before answering any questions or providing any
information to the Internal Revenue. Providing "the
wrong" information a/k/a "putting foot in one's mouth"
can cause irreparable damage to your situation.
Once you are selected for audit, do not make the mistake thinking that
you merely need to provide your trading details and some other
documentation to the IRS with a smile. The IRS examiner
will likely not have a clue what "Trader Status" is, and will disallow
the tax benefits taken on the tax return.
If you are contacted by the IRS you need representation. If
you need representation please download
form 2848
form
2848 )
"Declaration of Representative" fill it out as best you can
and sign it. Then see
IRS
Audit Representation for our retainer fee information and What's
needed to get started for other information to get together.
Don't be lulled into complacency. The
longer you procrastinate, the worse it will get. Taxpayers have
numerous options available to their defense at the initiation of an
audit inquiry. The "doors" to these options start
closing one by one as you delay in obtaining professional
representation. As the doors close you begin digging a deep hole
that will be more difficult to crawl out of. The costs to you in
taxes and penalties and in professional fees rise as each door closes.
The IRS is currently targeting self-prepared individual trader tax
returns showing trading losses and returns filed without the required
detailed attachment of your trades and/or returns with large
deductions on Schedule C lines 8 through 27.
The IRS is also targeting self-prepared entity tax returns showing
trading losses and returns filed without the required detailed
attachment of trades.
Whether you
use us
for audit representation or not, we implore you to immediately get out of the line
of fire and retain a CPA, a tax attorney or other tax professional to
represent you. Most taxpayers are likely to be causing their
case irreparable damage the longer they wait.
Are you playing the I.R.S. audit lottery?
IRS Tax Seizure Auction website:
http://www.treas.gov/auctions/irs/
Most trader status related audits come about because the definition
of what a trader is, is not clearly understood.
Definition of
a Securities Trader "Trader Status"
Definition
of an Investor
Definition of
a Dealer
"Dealer Status"
How
can you avoid an audit?
What
should you do if you get audited?
F.A.Q. regarding tax audits
The Internal
Revenue Service is now looking long and hard at the internet and
its potential for abuse by taxpayers / tax evaders.
When you are finished with your tax return, take a look at the
national averages to see how you stack up. A
trader's return oftentimes is quite a bit "off" from the
averages, but it is nice to know how far off you are so you can
make sure you have extra good backup in those areas.
National
IRS Averages
Internal
Revenue Service audit seizure auction page
These links are the best from a
wonderful web site of a Prairie Village, Kansas CPA. They're so good
we list them here for you to read at your leisure:
How
to Avoid an Audit
Little
Known Tricks of the Trade
IRC §6405(a) requires notification
to the Joint Committee on Taxation for refunds in excess of
$2,000,000. The previous level of $1,000,000 was increased in 2000.
Why retain us to handle your
IRS inquiries.
IRS controversy
issues, tax return audits and even routine IRS and State
inquiries are best handled by a professional CPA firm,
rather than going it alone and risking "putting your
foot in your mouth". Taxpayers signing a special IRS
limited Power of Attorney may
retain us to represent them
with many of these issues. Contact us before you contact
the IRS in response to an imposing inquiry.
Why use TraderStatus.com for your trader tax advisor?
TraderStatus.com is the Web Site presence of Colin M. Cody, CPA, CMA.
Colin advises Security Traders and CPAs across the country regarding
complex trader status issues. Colin has been advising Security
Traders on the Internet since 1991.
Colin M. Cody, CPA, CMA has been instrumental in the authorship of the
actual and forthcoming securities trader Tax Code by working with the
drafters of the IRS Code while interpreting the intent of the US
Congress when they pass the law.
Audits are handled for taxpayers in any of the U.S. States either by
communicating with the IRS examiners via telephone, fax and mail or by
transferring your case to Connecticut for face-to-face meetings with the
IRS examiners and appeals officers.
More often than not Colin finds errors in the preparation of the tax
returns under audit. The errors made on self-prepared tax filings
are responsible for initiating some audit inquiries. Errors we
find on professionally prepared returns are usually only found after a
thorough review of your paperwork back in our offices and sometimes
these have quite severe misinterpretations of the law.
It is not uncommon for us to find that taxpayers have overpaid their
taxes in prior years because regular tax rules were used rather than the
proper Trader Status allowances.
If errors favor the taxpayer and your taxes were overpaid, then we may
prepare proforma drafts of amended tax filings to present to the IRS
examiner during the audit. If the
errors favor the IRS and your taxes were underpaid, then then we
prepare for the possibility that the IRS examiner will also find those
same mistakes.
Click
here if you are ready to retain us
for your audit representation.
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