Real Estate Professional Status and IRS

[Stan Pace]

am currently being

[Linda Weygant]

I see your points.

One of the things you might be running into is that the IRS's budget was slashed dramatically after the whole Tea Party/Non Profit debacle a few years back.  The Republicans retaliated with a vengeance and have essentially crippled the IRS's ability to retain and hire talented auditors.  The IRS has seen a noticeable drain of their auditors who had the most longevity and are now trying to cope with mediocre, second string employees.  Not all of them, of course.  They do have some very talented employees who remain committed to their jobs and running into these people can be either a nightmare or a very pleasant dream, depending on what's going on with the client.

But I was a little amazed recently when I had a client who was a flipper where the income would have clearly been self employment income.  I casually mentioned during a telephone call that it "might be" capital gains income, but I needed additional time for more investigation.  The tax negotiator who was also on the call grabbed that and ran with it, essentially repeating over and over that it was capital gains income until the auditor started repeating it too.

I'm sorry you're running into issues.  Still don't know whose position is most correct and that's fine.  Since you aren't my client, I don't need to know all the gory details.  

I have the most success with the IRS when I am calm and pleasant and remember that they are just people doing a really thankless job.  Try to maintain a calm, professional demeanor and always back up your position with written proof.  If you're unable to do that, it may be time to hire representation.