IRS Warns Taxpayers to be Aware of
Abusive Home-Based Business Tax Schemes
WASHINGTON — The Internal Revenue Service is cautioning the public
about promoters who are selling the concept that taxpayers can operate
any type of unprofitable "business" out of their home and claim personal
expenses as business expenses. Taxpayers should be wary of these programs.
These schemes have gained popularity for a variety of reasons, including:
- The desire of individuals to reduce the amount of taxes they pay.
- Unscrupulous promoters, selling tax avoidance and audit assistance
packages.
- Taxpayers being advised they can deduct all or most of their home
and other personal assets as business expenses.
Most taxpayers with home-based businesses accurately report their income
and expenses, while enjoying the benefits that a home-based business
can offer. However, some individuals have received advice that they
can operate any type of unprofitable "business" out of their home and
claim personal expenses as business expenses. Non-deductible personal
living expenses cannot be transformed into deductible business expenses
regardless of how convincing the information in marketing materials
may seem.
The following are a few examples of items that are generally not deductible
as business expenses:
- Deducting all or most of the cost and operation of a personal residence.
For example, placing a calendar, desk, file cabinet, telephone, or
some other business-related item in each room does not increase the
amount that can be deducted.
- Paying children a salary (e.g. for answering telephones, washing
cars, etc.).
- Deducting education expenses from salaries paid to children wrongfully
claimed as employees.
- Deducting excessive car and truck expenses when the vehicle was
used for both personal and business use.
- Deducting personal furniture, home entertainment equipment, children's
toys, etc.
- Deducting personal travel, meals, and entertainment under the guise
that everyone is a potential client.
Any investment scheme or promotion that claims to allow a person to
deduct what would normally be personal expenses, and not ordinary and
necessary business expenses, should be considered highly suspect.
As always, a business must truly exist prior to claiming expenses.
For further information, visit the Criminal
Investigation Web site 
.
If you have specific questions on a tax scheme, or wish to report a
possible scheme, visit www.irs.gov/compliance/enforcement/article/0,,id=106778,00.html .
IRS Media Relations Office
Washington, D.C. Tel. 202.622.4000
2/04/04
