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034: Phone Call with Ms. S. re; §274 & Form 2106 (July 2012) - published 02/10/2025
4 Plays2 months ago
Discussion w/ Ms. S in July 2012: Form 2106 Unreimbursed Employee Business Expenses, Home Office Deduction, and the "Cohan Rule"
Recommended
Transcript
Essential Expense Documentation
00:00:03
Speaker
thought flag <unk> from on the twenty one sixes of a part flag yeah But if you have a 2106, it has your vehicle on it, it has your parking, it has your rentals, it has your ah commuting, youre I mean your, not your commuting, but your mileage, your meals, yeah, your mileage out of town, your your meals and entertainment, your lodging, your parking away from home, your tolls, et cetera.
00:00:30
Speaker
and um yeah well he he did he had a diary you have to have a diary you have you have to document who what where when why how okay you have to document document who what where when why how okay that's you've got to have that diary because i'll i'll give you a little i'll give you a little buzz thing let me let me just get this out i'll i'll say on this thing here You should quote this verbatim, and I can repeat it. I always tell this to my class, I say, contemporaneous record, of all contemporaneous records, okay, $75 is the threshold also. You only need a receipt if it's over $75, but you should have a receipt for everything, even if it's 25 or $30. But technically, you only need one if it's over 75.
Estimating Expenses with Cohen Rule
00:01:21
Speaker
Also, you should talk about the Cohen rule a little bit. You can Google that.
00:01:25
Speaker
Mr. Cohen, and you can see a statue right in Times Square. He was some kind of a yeah traveling salesman. He had a big court case Supreme Court case. he had He had all this travel for for his yes occupation, and he took it all the way. This was in the 1930s. His statue is right in the middle of Times Square. I swear to God. When you go out there, you'll see it.
00:01:54
Speaker
and um He had all these expenses and they denied him, den denied him, he went to appeals. If I went to the Supreme Court and the judge, you'll read it in in the thing, said, you know, obviously, you know, you couldn't have had these, you couldn't have conducted your occupation without these expenses. And you should, I should probably send you that thing on the colon tank too, because even though there's a little caveat with the colon roll, and that is, even if you,
00:02:24
Speaker
use the Cohen rule, that doesn't mean the IRS will accept it.
Accountable Plans vs. Itemization
00:02:30
Speaker
But here's the little deal. And you can have ah you can have um accountable plans and non-accountable plans as well. An accountable plan, obviously, is and a plan you account for with your employer. And if you usually, that's a reimbursed thing. So it will wash between you and the employer. It'll never go on to Schedule A.
00:02:53
Speaker
And by the way, give first of all, to do these miscellaneous itemized things, you have to itemize in the first place. Now that you can have enough mortgage interest and property taxes and state income taxes to get over the standard deduction, which for singles is 6,000 and for couples it's 12,000 roughly. You can look at that.
00:03:14
Speaker
So you got to get over that threshold in the first place, and then the 2% over that.
Importance of Contemporaneous Records
00:03:20
Speaker
but the cool Here it is. contemporary Although contemporaneous records are not required, everything alludes to them. I mean, that people just draw drops when I say that. Although contemporaneous records are not required, everything alludes to them. I'm going to read you what at the bottom of my little Cohen Rule thing on my website, because I have like a library of things that says, um caveat. Although you as a petitioner, meaning somebody petitioning a tax court, may prevail without records, mate you may prevail without records thanks to the Cohen rule, do note that it is far easier to win at an audit if you have contemporaneous records. And you usually won't need to go through the expense of a case in tax court. In other words, if you have the records in the first place, you won't have to
00:04:10
Speaker
it would have to be really significant, you know, to even think about it. Acceptance of the core and real real approximations is always discretionary with a court or an auditor too. A taxpayer is not automatically entitled to make an approximation in the Terrace matter. The IRS must be shown by all or written statements or other supporting evidence, a foundation on which a reasonable proxiation can be tested. Okay, so one more time, although contemporary NES records are not required, everything eludes to the IE.
00:04:43
Speaker
the travel log, the daily log, the mileage log. And I'm telling you, the IRS is getting really
Mileage Logs and IRS Requirements
00:04:49
Speaker
strict. They will not allow a deduction for mileage if you do not have a mileage log and that that is cut and dry. Now you've got to have receipts. The other thing you can do is if you've got seven, eight, nine months out of the year, you can extrapolate and do an estimate for all 12 months. You know, they'll take an average if you have more than 50% of your records present. Okay.
00:05:13
Speaker
Based on that. um
00:05:20
Speaker
He's just a hard ass, just he's just a hard ass. I mean, this guy's wife left him for the president of the company. One of the companies he was representing. He continued to represent the company though. And I mean the guy was a real hard ass. OK, but I maybe that's why he was successful. I don't know.
Tax Planning: Avoidance vs. Evasion
00:05:40
Speaker
A taxpayer can use estimated when he can pay Okay, today this is called the Cohen Rule, a taxpayer 10 years estimated when he can show some factual foundation to make a reasonable estimate for the expense. And it was Judge Learned at Hand, okay, who's like the famous, you know, judge, he's the one that said, nobody is required to pay more income tax than, you know, if you are by the law. it It is, you know, every citizen, you can let look this up, Judge Learned Hand's quote, and it was, um he said,
00:06:14
Speaker
It is everybody's duty to almost a paraphrase and to pay the least amount of tax partners within your rights as a citizen to pay no more tax than you absolutely ah have to when you're entitled to the correct tax plan. Tax evasion is illegal, but tax avoidance through proper planning is totally legitimate. So I'll send you this. some thing on Cohen and then I'll have your email and then I'll just I'll just send these other things to you at my leisure as I once my thing is up and running here.
00:06:52
Speaker
Yeah, I apologize for taking so long to get warmed up here, but I just my mind doesn't really think and I was trying to find some other
00:07:06
Speaker
You don't think you need the checklists?
00:07:17
Speaker
And so you know you're just looking for the unreimbursed business expenses. that That's it. You don't care about um any of the other itemized deductions.
00:07:29
Speaker
Okay, fine. So, I mean, I've got some other, I could could, if you asked me a few more questions or kept the conversation going, I might be able to, oh, this scanner is really ticking me off. I might be able to think of something, I mean.
00:07:51
Speaker
Another, let me just just give you another real quick example
Home Office Deductions: New Law
00:07:54
Speaker
here. um would be, excuse me, somebody that walks out of their home as an employee, like I've got a guy or had a guy that worked for, it was an AT&T cell phone consultant. And he started out, this is, you know, he started out 15 years ago, you know, 20 years ago when they were first putting up the cell towers and they used to go out and on foot, they would walk you know, to mountaintops, they find the highest, now they have GPS and and basically they just look on a GPS map and it tells them the highest point. They just go and they just read the quote the la latitude and longitude and you know, they, they send it back to the headquarters and they tell them where they want to put the power. Now they have to go out there and they have to you know negotiate with the owner of the property and all this blah, blah.
00:08:40
Speaker
But he used to go out, you know, drop through the woods and find, you know, places where the best thing for the cell tower. He'd go to the downtown Manhattan and go to the top of the buildings to find where to put the best place for the dishes were and all this. But he was working from his home ah because he was temporarily disabled. And he had a computer and he was linked up, you know, to do all the internet and everything from his house.
00:09:07
Speaker
and um he would He had an office in the home. Office in the home is another thing you can take. I almost forgot about that, see? So, um you know, if you have office in the home, there's a new law for office in the home now, they're gonna give you $1,500, wham, bam, take your man, no questions asked. It's based on $3 a square foot up to 500 square feet. That's a $1,500 max you know deduction with no documentation, okay?
00:09:36
Speaker
And you can Google that, too. That's coming out in 2013. But you know the home office has always been a space-time continuum, where you have to have a dedicated room, and it has to be dedicated to doing administrative functions of the... ah That's really a whole other topic, home office. But if you just want to touch on it, because that changed, too, with the Solomon case.
Impact of the Solomon Case
00:09:57
Speaker
Dr. Solomon was an anesthesiologist in Washington, D.C., and he had hospitals in Virginia and Maryland and DC that he would go around and do the anesthesia and they would come back to his house where his home office was and he'd do his paperwork, he'd do his bills, he his billing, he'd do his consulting, he'd set up a schedule and at that time the ah they denied him.
00:10:19
Speaker
okay And they he appealed it and they they denied it in the Supreme Court. They said, no, that's not where you do your primary job as anesthesia and you do that at the hospital, therefore you cannot have a home office deduction. But then Congress came after the silent case. they reversed it and Congress said okay now as long as you do your administer the primary administrative and managerial duties of your business and have no other place that you can do them comfortably or you know feasibly and you do them in your home office and that's where whether you have an Amway inventory or a Mary Kay inventory that's moot but like in this case Solomon with under today's law since 1993
00:11:05
Speaker
When they revised it, they reversed the Supreme Court thing that knocked Solomon down. And they said, okay, it's okay now to do your administrative and managerial duties out of the home office if it's the only place you can do it. That's all.
00:11:27
Speaker
Okay, you better jump off. All right. I'll try and scan. Did you want to give me your email? yeah yeah kind i hope if i thank you thank you m picer yeah
00:12:02
Speaker
Oh, okay, fine. Okay, fine. Thank you. Thank you, Ms. Spencer.