A Tax Strategist’s Role

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This time of year we get a lot of questions at the forum related to how to report income or expense items on a tax return. The answers are easy, but not always straightforward. For example, “How do I report a home office deduction?” will get you 3 different answers. If your business is a Sole Proprietorship, Schedule C (shudder), you report the home office with Form 8829 and then on Schedule C. If your business is a partnership, it gets reported on Schedule E. And if your business is an S Corp, it’s reported on Form 1120-S.

And invariably someone will occasionally challenge something I’ve said because of what they’ve read in the Instructions booklet from the IRS. And I’ll trot out the same explanation I always give. There is a hierarchy in tax law. Most significant is code, regs, rev procs and rev rulings. That’s followed by court cases, with the most emphasis placed on ones that are in your same jurisdiction. And finally there are PLRs which can’t be relied on per se, but can be used as indications of the IRS’s thinking. Where do instructions from IRS personnel or guidebooks come into play? They don’t. The instruction books are frequently wrong and the IRS knows that. That’s why you can’t rely on them if you’re making a case in court.

But what I really do as a tax strategist, is strategize. Sure, I have to know what cases I can rely on and how and I have to know how I report the whole thing at the end of the day, but as a strategist I am looking how to get you the best deal possible.

This past week, I’ve been immersed in a case, researching and researching. I have an end goal (What would you like the answer to be?) and now I’m shoring up the case to support it.

I have a real estate developer to crashed hard, like most did, in the real estate downturn and credit crunch. He’s got huge losses. These losses came on the heels of some spectacular years. His 2005 was a stellar year and that meant a ton of taxes, 2006 was a great year as well, but it was mostly capital gains with AMT kicking in, 2007 he barely paid $5,000 in taxes. 2008 and 2009 will be loss years.

I want to pull everything I can into 2008 and that’s what the research has been all about. Why? In 2008, net operating losses can go back 3, 4, or 5 years. At this point, 2009 losses are only allowed to go back 2 years. It might change, but I don’t want to risk my client’s money on a maybe.

As I’ve researched, I wondered how many people who just “fill in the blank” (and this is preparers as well as individual do-it-yourselfers) would have missed the huge opportunity.

As it is, we found out the way to do it and my client will get a refund of about $200,000. That will go a long way toward making up for all the losses this year so far.

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