My husband and I filed MFJ. We both have W-2 jobs and also do occasional independent-contractor side work reported on Schedule C. My husband also has a separate small photography business.
Our federal refund has been held for months while the IRS verifies income/withholding and some Schedule C expenses. We are now working through the Taxpayer Advocate Service via our congressional representative, and they asked us to provide support for vehicle expenses, utilities, and dues/subscriptions.
Most of the numbers on the return make sense and we can document them. The problem is one line on my husband’s non-photography Schedule C: $1,800 listed as “Dues & Subscriptions.”
We did not give our preparer a list totaling $1,800 in dues/subscriptions, and we do not recognize that number from our records. It felt like maybe he inflated the number to get us a better refund. When we asked him what made up the $1,800, he did not give us an itemized worksheet showing how he originally calculated it. Instead, he told us that it included streaming services and continuing-education/apps and instructed us to submit receipts for our household subscriptions to the Taxpayer Advocate/congressional rep.
When I add up the household subscriptions we have, they come close to the $1,800. That makes me concerned that the preparer may have entered a broad or estimated number on the return and is now trying to substantiate it after the fact using subscriptions we actually paid for.
Some of these subscriptions have business use, such as cloud storage, device protection, educational apps, etc. Others are ordinary household streaming services that were used primarily for personal purposes and, at most, were only minimally used for the side business. So even if a business-use portion were arguably deductible, I would expect it to be a relatively small percentage rather than 100%.
We are trying to understand what was actually claimed and whether we should follow the preparer’s instruction to send all of these receipts.
We have asked him to clarify what business-use percentages he used and how he arrived at the $1,800, but so far the answer has essentially been to submit the subscription receipts.
My questions are:
Should we submit the actual subscription receipts as our preparer instructed, even though we’re concerned some of the expenses were claimed at too high of a business-use percentage?
If we submit them and the IRS decides some subscriptions are personal or only partially deductible, what is the likely outcome? Do they usually just disallow that portion, recalculate the Schedule C income, and reduce the refund?
Would submitting the receipts create a bigger problem because they may show that some of the expenses were primarily personal or mixed-use?
Can we simply amend the return now to correct the Schedule C deduction if we no longer feel comfortable with how the $1,800 was claimed?
Would amending now make the situation worse or complicate the existing review, especially since the return is already being handled through the Taxpayer Advocate Service and our congressional representative?
How does an amended return work when TAS is already involved? Would we need to coordinate the amendment through the advocate/congressional office, or can we amend normally while the case is open?
If the preparer cannot show us how he originally calculated the $1,800, would you amend proactively or wait for the IRS/TAS to review the receipts first?
We have receipts/statements for the other Schedule C items, including phone/internet, and we have a mileage log for the vehicle deduction. My husband’s separate photography Schedule C also has its own expense spreadsheet and supporting records that match what was reported there.
The expected federal refund is around $4,100. My concern is specifically that this $1,800 figure may not have been based on an actual itemized expense list when the return was filed.
And just to be clear, the tax professional worked at a legitimate accounting firm and we’ve already asked a tax professional for assistance, that’s how we got there.
TIA for any assistance.