IRS Tax News: Failing to Produce Evidence for Claimed Deductions Will Cost You More in IRS Penalties

In recent tax court news, the IRS re-affirmed the need for proper, paper-trail evidence when claiming deductions on your tax returns. A couple based in Alaska filed their tax return with medical expense and home deductions, however they failed to supply any evidence of the costs associated with these deductions. Furthermore, their return was filed late. Without providing sufficient evidence, your claims are in effect meaningless. The combined effects of these tax blunders result in late filing penalties and unacceptable deductions.

CCH (http://intelliconnect.cch.com) reports:

The IRS’s disallowance of a couple’s claimed deductions for medical expenses and home mortgage interest was sustained, and the failure to file penalty was imposed, based on the evidence the couple provided. Since the couple failed to provide any proper substantiation to support their claimed deduction for medical and dental expenses, no estimate of the amounts could be made. Also, the couple was not entitled to deduct home mortgage interest with respect to a loan because the debt was not acquisition or home equity indebtedness for which interest could be deducted. Finally, the couple failed to offer any evidence of reasonable cause and lack of willful neglect for their failure to timely file their return.—CCH.

When filing your tax returns, individuals are allowed to make various deductions, including expenses the taxpayer paid for medical care and treatment for himself, spouse or dependents. However, this deduction is valid if the expenses exceed 7.5% of the adjusted gross income of the taxpayer and are not compensated for by insurance. Taxpayers can also make deduction claims for home mortgage or “qualified residence interest” – interest paid while acquiring a residence. This amount too is limited based on the market value of the residence in question and cannot exceed $100,000.

In this IRS case, the taxpayers in question failed to provide evidence of medical and home mortgage expenses. For example, providing invoices, name and addresses for payments made, amount and dates of payment, etc. When such evidence is not supplied with the tax return, the IRS can deny the deductions requested/claimed. This is quite simple, really. If you cannot support your claim with written documented proof, your claim does not exist in the eyes of the IRS. This not only results in possible court trials and disputes, but will incur additional fees for interest, lawyers and other fees associated with the delayed processing of your tax return.

In this weak economy, it is understandable that many taxpayers feel the need to reduce the amount of taxes paid throughout the year and seek various deductions on their tax returns. While you are allowed to claim for deductions, ensure you are doing it correctly by supplying the necessary documentation. Remember, you need to show the IRS that your deduction in legitimate – what you deducted, when, why and how much.

It is important to realize that deliberate evasion of income taxes through false deduction claims will only lead to more IRS penalties and fines down the road. If you have any tax problems such as back taxes or filing late tax returns, it is recommended that you resolve them immediately to avoid further penalties.

If you have IRS problems, you can consult tax help from a tax attorney, CPA, or Certified Tax Resolution Specialist. Tax Resolution Services is a dedicated team of tax experts who are here to help you. Call our office today at 1-866-IRS-PROBLEMS or visit www.taxresolution.com for a free tax relief consultation.

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