correct.

as an accountant, i can tell you that's a HUGE error (as you know by now).

it's fundamental accounting - it's a leasehold improvement, NOT an expense. typically a leasehold improvement should be amortized for the "period" of the lease or mortgage. of course if you have a 30 year mortgage, you can make the arguement that it'll only last 15 years, so you would divide the cost by 15 and depreciate it in 15 increments over 15 years. the IRS would most likely be fine with this. on the flip side, if you have a 5 year mortgage, i highly doubt the IRS will let you amortize it over only 5 years, knowing that a roof typically lasts 15 years. nonetheless i'm sure you can get the prescribed amortization methods and rates from their website for your particular types of expenditures.

the IRS or CRA (canadian equivalent) would not look too kindly upon this.

basically you've tried to write off something that can't be - you're trying to scam them (not your intent, but their perception).

it's no different than trying to write off your yearly groceries.....you can't!!

having said that, there will always be people that try - and get away with - tax evasion!!!

 

OK, since your CPA prepared (and put her name on your return as the preparer) your tax, you should have brought her along to any meeting with the IRS. Your mistake is not calling your CPA in on the audit, she should answer any question on how the tax return was prepared, not you. I am surprised that your IRS auditor did not bring this up at your meeting (they should ask you who prepared your tax return and if it was a third party, the auditor should tell you to have the preparer present). The first thing you should have done after receiving notice from the IRS is to call your CPA and tell her there is an audit and let her get things together to "defend" why she did your tax return the way she did.

As others have said, you are responsible for the tax you owe; but your tax preparer should pay any penalty. You'd have to argue with your tax preparer about the interests. Good luck.

 

i don't consider it tax evasion.

depreciation and expensing all have the same effect at the end; you are deducting the cost of the item. the only difference here is 1 year vs 1/15 over 15 years.

 

[QUOTE=S2K,Jan 5 2005, 04:07 PM] Of course I signed it.

 

No CPA with tax prep experience could make that kind of "mistake". If the improvements were written off (barring a section 179 election, which doesn't apply in this situation) the preparer is either incompetent, or was trying to make the tax as low as possible, either from pressure from the client, (no excuse) or to make themselves look good.
You should have confidence in your preparer that things will be done right. If I explained every return line by line, my fees would double or triple. Not that I won't if asked, but it's rare that I am asked.
Also a new roof on a residential rental has a 27 1/2 year life for federal depreciation purposes, so the difference is significant. (A minor repair could be written off, so it could be a difference of opinion between the CPA and the IRS for this one item)
S2K, please report the results of your discussions with your preparer. Thanks.

 

S2K, how about a followup? Last you posted you were going to call your CPA. What'd she say?

 

Sorry for the late reply. I haven't been on the site for a very long time. I have a different CPA that's dealt with audits and he's working on it with the IRS...but things aren't looking any better. I guess I'll have have to end up paying for the tax owed and then have the original CPA pay for penalties and so on.

Thanks for everyone's input.

 

a bit late to the show......you have already sold this property so in the end you expensed some capital items too early and then when you sold it you had a higher "capital gain" then you should have.... so in theory you should only really owe the difference between the two.

I always expense $400 stoves.... who the hell would capitalize that? We don't capitalize anything under $1k.

A roof is a different story, but stoves and refridgerators shouldn't be capitalized in my opinion. ($1k and 3 years of service is what i call capital)

 

Scot, the IRS won't agree with that. A stove and refrigerator last more than one year (you hope) so they need to be depreciated. Now if you bought a used one for 100 bucks I would agree. Yeah, I know, you've always done it that way. But has the IRS looked at your return, saw you did it that way, and said no problem?

 

i have listed "refridgerator" or "stove" in the line under "other deductions" for years now.

They are generally $350-$400 for new stuff.... i have purchased used crap in the past for $250.00 but never below that.

Here at my work we use the $1k or 3 year principle and have never had any audit issues.... it is a $80M company, but that shouldn't really change what you should capitalize.

o well.... i guess if they wanted to push the issue they could..... i don't expense any new roof's though..... i think they were all roof "repairs" though......