The Internal Revenue Service issued a consumer alert today
regarding home-based business schemes that purport to offer tax "relief." In
reality, they provide bad advice to unwary taxpayers that, if followed, results
in improper tax avoidance.
The promoters of these schemes claim that individual taxpayers
can deduct most, or all, of their personal expenses as business expenses by
setting up a bogus home-based business. But the tax code firmly establishes that
a clear business purpose and profit motive must exist in order to generate and
claim allowable business expenses.
As the 2002 filing season begins, IRS advises taxpayers to think
carefully before filing a return that reflects such unallowable activities. No
matter how convincing the claims that are found in marketing materials for these
schemes may appear, nondeductible personal living expenses cannot be transformed
into deductible business expenses.
"Each year, taxpayers reasonably search for deductions that will
reduce the amount they owe,’’ said IRS Commissioner Charles O. Rossotti. "But
they should resist the temptation of quick and easy schemes. Creating a bogus
home business or other schemes cross the line and puts the taxpayer on a path
that will result in paying interest and penalties on top of the taxes they owe."
Some examples of personal expenses that are not deductible but
are commonly claimed as business expenses in home-based business tax avoidance
schemes include:
