The Internal Revenue Service (IRS) seems to be using new tools to audit interesting situations whereby a Taxpayer achieves a substantial Tax credit.

A tax credit can be so much more valuable than a tax deduction as a deduction reduces income and then a tax rate is applied.  Therefore, the marginal savings a deduction provides is only a portion of the amount incurred. Whereas a tax credit can offer a benefit for each dollar amount spent.

That benefit seems to have received extra attention from the IRS as we see a couple of recent tax court decisions which seemed to have discovered situations that were costing the Government money without providing the intended benefits to the economy:

  • In TC Summ. Op. 2016-81 (Berry) the taxpayer claimed $5,800 of self-employment income from the one-time sale of tools and machinery, however, self-employment income is reserved for those in their own recurring business intended to make a profit. By reporting this capital gain income as another type, Berry, then, “conveniently” qualified him for a nice earned income credit. The court moved the income to Line 21 of Form 1040, removed the self-employment tax (and earned income credit) rightly stated that a one-time sale of tools is not considered an activity entered into for profit “with continuity and regularity.”
  • In the Federal Court of Claims case Foxx v. U., 2017 PTC 46 (Fed. Cl. 2017) a

$2,500 preparer penalty was assessed because the preparer artificially reported additional income in order to claim a larger earned income credit for a client.

Rightly so, there are limits to what can be accomplished with Tax planning.

Whether you are a business, individual, or non-profit, we can outline specific steps you should take to minimize taxes, maximize loan eligibility, and enhance the value of your property.

For more information, contact us at or (212) 397-2970.

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