Deductions that are too late to deduct during an audit

Glendale, AZ · Member since 2017 · 1k+ posts · 236 votes

Hi guys,

I never claim my home office on my taxes and I was thinking that when I have an audit, and the audit finds something, then I can use the unclaimed home deduction to offset it.

But then Ive heard that some deductions are not allowed to be claimed during the audit , because its too late. (Not sure if the home deduction is one of them)

What are the tax deductions that are too late to deduct post filing taxes (during audit)

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Glen Wiley

Investor · Richmond, VA · Member since 2023 · 459 posts · 474 votes

You should always take all of the deductions you can legally take. You don't "offset" findings with deductions you didn't take - get a good cpa who specializes in real estate.

We closed an audit successfully 2 weeks ago - no change to our filing. The key is to run your operation so thoroughly that you don't fear an audit. We just look at an IRS audit as an (expensive) validation that our paperwork is solid.

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Glen Wiley
Investor · Richmond, VA · Member since 2023 · 459 posts · 474 votes
2y
You should always take all of the deductions you can legally take. You don't "offset" findings with deductions you didn't take - get a good cpa who specializes in real estate.

We closed an audit successfully 2 weeks ago - no change to our filing. The key is to run your operation so thoroughly that you don't fear an audit. We just look at an IRS audit as an (expensive) validation that our paperwork is solid.

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JD MartinBusiness Member
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Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
2y
Quote from @Mary Jay:

Hi guys,
I never claim my home office on my taxes and I was thinking that when I have an audit, and the audit finds something, then I can use the unclaimed home deduction to offset it.
But then Ive heard that some deductions are not allowed to be claimed during the audit , because its too late. (Not sure if the home deduction is one of them)
What are the tax deductions that are too late to deduct post filing taxes (during audit)

Essentially everything. If you didn't take a deduction that you could have taken, then you can either file an amended return (if you are within the window) or it's just washed away. I don't know of any laws that allow you to offset mistakes with things you didn't know about.
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Nate MeekerBusiness Member
Real Estate CPA | California · Member since 2020 · 543 posts · 251 votes
2y
@Mary Jay - You are going to owe penalties and interest on whatever the auditor finds, regardless.
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Mary Jay
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Glendale, AZ · Member since 2017 · 1k+ posts · 236 votes
2y
Quote from @Nate Meeker:

@Mary Jay - You are going to owe penalties and interest on whatever the auditor finds, regardless.

A friend of mine said she had an audit and the IRS ended up owing her money. So the only way its possible is to miss some deductions , right?

Also my neighbor said after her audit IRS send her a check for 4K.
Some deductions must of been missed and then added by the IRS.
Which deductions could be added and which is too late to claim during an audit?
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Nate MeekerBusiness Member
Real Estate CPA | California · Member since 2020 · 543 posts · 251 votes
2y
@Mary Jay - Potentially if it was a clear mistake, but potentially not in the event you are currently choosing not to include the expense or amend it and fix it. The IRS looks at intent often. Your intent right now is playing a game so they could disallow it.
The IRS's long-standing administrative practice is to recognize amended returns that correct clear errors or plain mistakes on originally filed tax returns (Klinghamer v. Brodrick, 242 F.2d 563 (10th Cir. 1957)). Despite this, the treatment of an amended return is a matter of administrative discretion (Fayeghi, 211 F.3d 504 (9th Cir. 2000)). As a result, the IRS's refusal to accept an amended return is subject to judicial review only for abuse of discretion (Miskovsky, 414 F.2d 954 (3d Cir. 1969)).

If the IRS has the discretion to accept or reject an amended return, the question then arises: Is a taxpayer required to file an amended return when an error or omission is discovered on an originally filed tax return? Regs. Sec. 1.451-1(a) states that "if a taxpayer ascertains that an item should have been included in gross income in a prior taxable year, [the taxpayer] should, if within the period of limitation, file an amended return and pay any additional tax due" (emphasis added). Regs. Sec. 1.461-1(a)(3) contains similar "should" language with respect to amended returns and the discovery of erroneous deductions taken in prior years.
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Mary Jay
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Glendale, AZ · Member since 2017 · 1k+ posts · 236 votes
2y
Quote from @Nate Meeker:

@Mary Jay - Potentially if it was a clear mistake, but potentially not in the event you are currently choosing not to include the expense or amend it and fix it. The IRS looks at intent often. Your intent right now is playing a game so they could disallow it.
The IRS's long-standing administrative practice is to recognize amended returns that correct clear errors or plain mistakes on originally filed tax returns (Klinghamer v. Brodrick, 242 F.2d 563 (10th Cir. 1957)). Despite this, the treatment of an amended return is a matter of administrative discretion (Fayeghi, 211 F.3d 504 (9th Cir. 2000)). As a result, the IRS's refusal to accept an amended return is subject to judicial review only for abuse of discretion (Miskovsky, 414 F.2d 954 (3d Cir. 1969)).

If the IRS has the discretion to accept or reject an amended return, the question then arises: Is a taxpayer required to file an amended return when an error or omission is discovered on an originally filed tax return? Regs. Sec. 1.451-1(a) states that "if a taxpayer ascertains that an item should have been included in gross income in a prior taxable year, [the taxpayer] should, if within the period of limitation, file an amended return and pay any additional tax due" (emphasis added). Regs. Sec. 1.461-1(a)(3) contains similar "should" language with respect to amended returns and the discovery of erroneous deductions taken in prior years.

Great info! Thank you!
Where does it says "should" amend if deductions were missed?
Am I obligated to deduct everything I can?
I thought what I chose to deduct and how I chose to deduct is my choice and my desire?
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