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Form 1065 CPA discusses Partnership Unreimbursed Expenses | NC

Form 1065 CPA wilmington nc Partnership

Gary Bode, CPA: we work hard to keep Partnerships out of IRS problems. For a free phone consult, please call 399-2705.

Form 1065 CPAs stay on top of IRS Partnership issues by watching Tax Court Cases. The case McLauchlan v. Comm’r, T.C. Memo. 2011-289, dated 12/19/2011, contains a morality tale for 2012 and beyond; it shows the IRS doesn’t appreciate a cavalier attitude.

The Partnership Side

The case features a Partner in a law firm. Like most Partnerships, it had rules on reimbursable Partner expenses:

  • Partners paid legitimate expense out of pocket.
  • Partners then submitted expense reports to Partnership.
  • Partners got reimbursed from Partnership.
  • The Form 1065 CPA then appropriately deducted reimbursed expenses for tax purposes.

The Partner’s Side

  • Partner incurred legitimate IRS and Partnership expenses under the Partnership’s policies.
  • Partner did not submit about $40,000 of legitimate expenses for reimbursement.
  • The Form 1065 CPA did not deduct these expenses for tax purposes on the Partnership return.
  • Partner tried to deduct these $40,000 of un-submitted expenses on his/her personal Form 1040.
  • IRS audits Partner.

The IRS Side

  • IRS audits Partner.
  • IRS disallows expenses on Partner’s return that could have been reimbursed.

Author’s Perceptions

  • The Form 1065 CPA should have noted the Partner’s submitted expenses were off from previous years.
  • Form 1065 CPA should have realized Partner’s expenses were “off” compared to other Partner’s expenses.
  • Partner probably used the rationalization that since Partnership tax consequences flow to him/her anyway, what’s the difference?
  • Partner was entitled and cavalier about Partnership policy.
  • Partner was cavalier with the IRS; there probably was a tax liability difference the way the Partner handled unreimbursed expenses.
  • Partner was so out of touch with average America that $40,000 didn’t seem like much money.
  • Partner did not realize he/she makes a fine example for the IRS to publicize.

I’m a Form 1065 CPA that tries to keep Partnerships out of trouble by actively looking for red flags. That’s no guarantee the IRS won’t audit you, of course. While my physical office is in Wilmington NC, there is a virtual office to serve long distance and international clients. Look at some of the dozens of Partnership posts within the hundreds of postings on this website to get feel for what I do and how I approach Partnership issues. If you’d like a free phone consult, please call (910) 399-2705.

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