The 9 weirdest tax write-offs

From: Robert Morien (PhD_failure_at_nousefulinfo.com)
Date: 03/03/05 

Date: Thu, 03 Mar 2005 15:09:45 -0800

The IRS offers no points for originality, but you can't blame
taxpayers for trying. They're writing off criminal acts, their pets
and even their televisions.

Did you hear the one about the ostrich? The sperm donor? The dog food?

They're just three of the more ingenious tax deductions that creative
Americans have devised over the years to counterpunch the tax
collector. A quick Ali shuffle, a feint with the left and an
outlandish deduction delivered with a straight face can take the sting
out of the annual tax beating -- at least until the Internal Revenue
Service catches on.

Taxes, of course, are no laughing matter. Serious consequences await
those who fail to file, falsely file, knowingly underreport or
otherwise throw spitballs at the system. Just ask Willie Nelson, who
lost the best little golf course in Texas to back taxes.Simplify your
taxes and get your refund faster.

File online.
 
Still, every year Americans try to shave what they owe on their
personal income tax returns by pushing the envelope and letting their
certified public accountant make the line calls.

"If you're going to be aggressive, deductions are where you're going
to do it. You're not going to do it in the area of income; you want to
report all your income," says Frank Howard, CPA and principal of
Howard and Waltrip in Dallas. "I go ahead and apply the smell test.
Most of the time, they're just throwing everything up against the wall
to see if it sticks."

Old argument invalidated

As any accountant will tell you, the rewards of cheating on your taxes
are never worth the risk. And even if you find a tax pro willing to
push the limits, the Treasury Department says when it comes to
"potentially abusive" tax moves, the old "my tax adviser said it was
OK" argument will no longer work.

"We are raising the stakes for taxpayers who fail to disclose
potentially abusive transactions to the IRS," stated Treasury
Assistant Secretary for Tax Policy Pam Olson in announcing the tougher
rule on Dec. 30, 2002. "Too many tax advisers have counseled clients
against disclosing their transactions with the expectation that the
advisers' opinions will allow the clients to avoid penalties."

By removing that argument, tax officials now believe taxpayers'
risk-to-reward calculations will be more judicious, eliminating what
Olson describes as "inappropriate tax avoidance transactions."

Still, it's a good bet that as April 15 approaches, many taxpayers
will do -- or at least try -- the darndest things. Here are nine of
the funniest, though not recommended, tax-trimming attempts that
clients have taken to CPAs across the country.

My son, my dog

Disc jockeys typically don't make much money and save even less. A few
years ago, one approached Wyoming CPA Mike Lovelett for some free
advice.

"I've got this problem, and I'm really starting to get nervous about
it," the DJ admitted. "Several years ago, I was going to owe some tax,
so I put an extra deduction on my tax return."

Well, reasoned Lovelett, managing director of Lovelett, Skogen &
Assoc. in Casper, it couldn't be that bad. Then the DJ explained: "I
put my dog on as a dependent." The radio personality had deducted his
dog Red all these years, a move that meant he owed nothing to the IRS.

Sex and the city

Then there was the client who approached Manhattan CPA Marc Albaum
about a very personal tax matter. "He had made some money being a
sperm donor and wanted to know if he could take a depletion
allowance," Albaum recalls. "I told him he really needed to be an oil
well or something like that."

Playing with fire

Herb Wakeford, a CPA in Raleigh, N.C., recalls a Pittsburgh
furniture-store owner who, after years of trying unsuccessfully to
sell his business, hired an arsonist to torch the place. The insurance
company paid off to the tune of $500,000, which the owner dutifully
reported on his income tax return. However, along with taking the
proper deductions for the building, its contents and the usual
business expenses, he also deducted a $10,000 "consulting fee" he had
paid the arsonist. An IRS audit two years later landed them both in
jail. The IRS disallowed the "consulting fee" and slapped on $6,500 in
additional taxes, penalties and interest.

What, not the Barcalounger?

Then there was the client who insisted on deducting the cost of his
television and cable service against his accountant's advice. "His
reasoning was that he was a Spanish teacher at school, and the only
reason he bought the TV and had the cable was for the Spanish channels
so he could be able to teach his students better," Howard recalls. "I
told him, well now, not too many people out there can deduct the cost
of their TV and cable, but if you can get away with it, knock yourself
out."

Fun with livestock, part I

Back when the Society of Louisiana CPAs manned a tax hotline, few
inquiries stumped them. But Al Suffrin, SLCPA's communications and
public relations director, recalls one that did: "We took a call from
an ostrich farmer in St. Tammany Parish who called in to find out how
to go about depreciating an ostrich," he recalls. Strange as it
sounds, you can depreciate an ostrich or any other livestock, as long
as they're used for breeding.

Fun with livestock, part II

Which brings us to the tale of the crusty old Texas rancher who
insisted upon accompanying his CPA, Raymond Lott of Lott, Vernon & Co.
of Killeen, to the rancher's first tax audit. When the rancher's tax
depreciation schedule listed 15 or 20 animals as breeding stock, the
no-nonsense young IRS agent challenged the old cowboy. "I presume you
breed these animals?" she asked pointedly. Without hesitation, the
rancher replied, "Nope," sending his CPA into mild tachycardia. After
a sufficient pause, the rancher finished the popular Texas joke, "I've
got a bull for that."

Go fish

There was a time when deductions were as plentiful as dinner mints.
"Many years ago when I was a young clerk, a local CPA kept a very
large glass bowl filled with receipts in his office," recalls Nancy
Reynolds of Reynolds & Associates in Naples, Fla. "If a client came in
and was a little shy of deductions, they merely dipped into the bowl
and helped themselves to some of those glorious deductions."

Sic him, Fido

Sometimes deductions seem so logical they just have to be legal.

"I had a guy come in one time wanting to know if he could deduct the
cost of his dog food. His reasoning was that his dog was security for
his house, therefore the dog food became a security expense," Howard
says.

"I kind of liked that one. The IRS loves that stuff."

He works in mysterious ways

And when all other loopholes seem closed, sometimes only a higher
power can help.

One fine February, a rookie tax accountant completed a slam-dunk
return for one of the firm's old and trusted clients and turned it in
to his boss, relates Mary Anne Petesch, a CPA with Hagen Kurth Perman
and Co. of Seattle. There followed several loud whoops of laughter
from the partner's office.

It seems the client had accidentally lost his dentures when they fell
in the toilet, and had claimed them on his taxes as an act-of-God
casualty loss.

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