By: Martin M. Shenkman, CPA, MBA, JD
If you’re disappointed with your accountant, the two winners below are probably looking for new clients.
Is this the guy you want advising you? This CPA reported $21,553 profits from accounting services and $83,451 from gambling activity, all of which was offset by gambling losses. Instead of settling with the IRS he took the case to court to maximize his public embarrassment. He lost because he did not demonstrate that the primary purpose of his gambling activities was to earn a profit. Ah shucks. That’s because he only spent 17 hours/week gambling. You can be considered in the trade or business of gambling if you gamble with “continuity and regularity” and your “primary purpose” is to earn a profit. So if this guy won, his clients would have really been inspired. However, a sporadic hobby does not qualify as business, and since our CPA was only a sporadic gambler the Court held that his gambling was not a business. The result? His gambling losses were only deductible as an itemized deduction. Mohammadpour, TC. Summary Opinion 2007-163
Why waste the client’s money? For some transactions it’s advisable to seek advance IRS approval (private letter ruling). In this case, it was just embarrassing. PLR 200729004. The client subdivided a property into two parts, then transferred one to a qualified personal residence trust (QPRT). The client restricted the second part with a conservation easement. The tax adviser submitted three questions to the IRS: (1) was the first part a "personal residence", (2) did the trust qualify as a QPRT, and (3) was the interest retained by the client a "qualified interest". The IRS issued the requested ruling, and took the client’s payment for the request, but didn’t answer the last two questions, referring the adviser to Rev. Proc. 2003-42, 2003-1 CB 993 which provides sample trust language for QPRTs. The IRS said that if the client follows the cookbook provided they "can be assured" that the IRS will recognize the trust as a QPRT, provided that the trust is operated in accordance with the terms of the trust, and is a valid trust under local law. In other words, tax adviser, read what we publish before asking the same question.
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