The IRS Is Looking For You!

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3.9K followers

The Internal Revenue Service is looking for you If you are:

  • an American taxpayer,
  • small or home business owner,
  • filing Schedule C for your business. and
  • reporting losses.

New start up companies often have years of losses. The IRS understands that. But Tax Compliance Officers are looking for tax filers who abuse the rules about losses.

A number of taxpayers who have significant income from other sources reduce their taxable income by reporting losses from activities that may or may not be engaged in for profit. It is up to IRS examiners to make a factual determination whether an activity is engaged in for profit. This is referred to as the “hobby loss rule” under Internal Revenue Code § 183.

The IRS has nine factors used to evaluate whether a taxpayer is engaged in a for profit business. They are:

  1. How the taxpayer carries on their business
  2. The expertise of the taxpayer or his advisors
  3. The time and effort expended by the taxpayer in carrying on the activity
  4. Expectation that assets used in activity may appreciate in value
  5. The success of the taxpayer in carrying on other similar or dissimilar activities
  6. The taxpayer’s history of income or losses with respect to the activity
  7. The amount of occasional profits, if any, which are earned
  8. The financial status of the taxpayer
  9. Elements of personal pleasure or recreation

My Personal Story

Years ago I was a professional golfer. Not a very successful one.

My plan was to become a touring member of the Senior PGA Tour. To execute my plan, I trained with professional instructors, spent long hours practicing, played in mini-tours around the country, played in Senior U.S. Open mid-sectional qualifiers, and played in the inaugural Virginia Senior Open.

I won a few small tournaments, but never did win enough to cover all business expenses. I had an affidavit from a tax attorney addressing the business nature of my activity and associated business expenses. I ended this business when it was apparent I was not achieving my plan.

Summary

Have a business plan. It will help you plan and build your business, keep you focused on your objective, and help you should you ever be audited by the IRS. They will ask you if you have a business plan.

Score.org is a good source for business related subjects including plans.


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Recent Comments

48

Thanks for sharing this bit of information Glen.
Jerome

I always go to the source irregardless, don't answer unknown calls or click on links within emails..

That is a good practice to do. I generally don't answer telephone calls if I don't know the caller. And I certainly don't open attachments or click on links from senders I don't know.

Thanks for the information.

You're welcome, Chukuemeka!

Hi Glen, I enjoyed reading the post. Irv.

Thank you, Irv! I appreciate you stopping by and commenting.

Oh no! Thanks for the warning (actually I have nothing to worry about here!)

IRS scammers are also looking for you. thanks for looking out for us Glen!

Yes, they gave me a call last saying they were going to send me to jail.

How sure are you that the call was really from the IRS? My understanding is that the IRS will mail you a notice rather than call about tax issues.

"TUCSON (KGUN9-TV) - The Internal Revenue Service is warning of a phone scam targeting taxpayers.

"What they're telling people nowadays is that we tried to contact you by mail, but it was sent back undeliverable," IRS Special Agent Brian Watson said. "It sounds very plausible if a letter from the IRS got returned."

[snip]

Watson explained the IRS will never call out of the blue, and will only get in touch via phone if there had been previous established contact between them and the taxpayer.

"You'll have already made contact with them, it'll be a pre-existing audit or collection issue," he said. "Something like that."

Reiterating ways to spot scams, Watson added the IRS will never demand money over the phone, will never ask for a credit or debit card number over the phone, and will never require a taxpayer to use any specific form of payment.

Source: http://www.kgun9.com/news/local-news/irs-warns-of-phone-scam

Sorry, Glen -- I missed the fact that your "they" was referring to IRS scammers rather than the IRS itself.

As a former tax practitioner, I am 100% positive the call was from a scammer. The IRS will not call a taxpayer let alone threaten anyone with jail time. All communications is done via mail unless there is an ongoing case and prior contact established like mentioned in your comment. :)

I get way too many of these IRS scammers. At first they had foreign accents, now the callers are getting better. But still scammers.

Good counsel.

Thanks, Steve.

Thanks for the information!

You are welcome, Karin!

This is good. Thanks for this.

You're welcome, John.

Great information that can be useful. Thanks for sharing.

You are welcome, Corvisart.

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