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Tax time brings out a creative streak in the citizenry, at least when it comes to financial fibs to fatten our refunds. So let's check your eligible deductions:
• Vitamins: No.
• Used Army halftrack: No.
• Breast implants: Yes.
The vitamins and the halftrack were attempts to write off personal expenses as business costs. But the implants were the real deal. (Or more accurately, the real unreal deal.)
In a widely noted case, the IRS busted a $2,088 deduction for implants by a Green Bay, Wisc., "exotic dancer" doing business as "Chesty Love." When Chesty pressed her case in 1994, the Tax Court embraced her argument, calling the implants a
legitimate and deductible business expense.
Had a few of our founding fathers been on hand, they surely would have proclaimed, "No taxation on Chesty's augmentation!" Although, being men, they'd probably just drool.
Desperate for deductions
Here in Metro Detroit, tax preparers report that they're seeing more and more clients trying to push the tax envelope with dubious deductions.
"It's desperation now," says Mike Slomski of Slomski & Raedel CPAs in Harper Woods. "With the economy, people are trying to get as much as they can in tax deductions."
But they won't get much, because the IRS is cracking down. Take charitable deductions: You need a receipt and a note from the charity, and forget about any cash donations without a letter of confirmation.
"I've seen donations go from $6,000 to $1,100 in one conversation -- as soon as I ask for the letter from the church," says Diane Randolph, an IRS enrolled agent in Royal Oak.
Slomski says he's thrown out even more dubious claims. "We've had people come in with some interesting church names I don't believe ever existed."
Bad return equals big fine
Meanwhile, tax preparers are getting pickier because they face bigger fines for bad returns, along with the possibility of losing their licenses.
"I'm getting ready to boot a client because the expenses for their house is more than what they're making," says John Maddox of Maddox Ungar Silberstein CPAs in Bingham Farms. "Obviously, there's income that's not being reported. That's just
asking for trouble."
Maddox adds that the biggest risk with phony deductions comes if you hire a less than scrupulous preparer. "There still are guys out there who come up with the creative stuff," he says. "It's just tax evasion."
And it's expensive. When you, not the tax preparer, get caught, the fine for fraudulent filing is up to 75 percent of the tax owed, plus interest.
For more information
Please contact Susan Pearcy at Detroit accounting firm Maddox Ungar Silberstein
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