IRS Audit

[bluzin1]

I originally posted this in the TUG Lounge, but this category appears to be better related to my subject...

Well, I can mark IRS audit off my bucket list.
I own Wyndham points and rent out the condos that I book with 100% of my points.

I claim the income, but the IRS said that they disallow any deductions because Wyndham "manages" the timeshare.
I see Wyndham acting like a condo HOA by arranging daily resort maintenence and paying utilities and then acting in a mangement capacity by arranging maintence in the rooms and arranging cleanings after our stays.
I pay dearly for these services.....as you all know.

I advertise the location, plan the booking, sometimes at 13 or 10 months in advance, advertise for guests, speak to guests, gather guest information, collect the payments, deposit the payment, BUY a guest certificate, sometimes PAY for housekeeping credits, email guest the confiramtions and answer any questions, verify with resort that they have correct guest confirmations and sometime arrange rooms (families want to stay on same floor, guest want lower floor, guest needs pack & play..etc...) pay my maintenence fees.

I am trying to deduct maintenence fees, guest certificate fees, housekeeping costs, advertising cost, phone costs from the income.

Somehow the IRS agent is not hearing me - they are hearing "timeshare" and say that nothing is deductible.

Has anyone had experience with this ??

Thanks in advance
Blues.....

 

[aliikai2]

I would advise you get a Tax accountant

to help you with this problem. The agent is not understanding the law, and is disallowing it based upon the rule of less than 60 days of rental, making it a personal use issue.

They are wrong and you are right, but unless you get someone with the CPA or Law degree to explain it, the government is always right.

Greg

I originally posted this in the TUG Lounge, but this category appears to be better related to my subject...

Well, I can mark IRS audit off my bucket list.
I own Wyndham points and rent out the condos that I book with 100% of my points.

I claim the income, but the IRS said that they disallow any deductions because Wyndham "manages" the timeshare.
I see Wyndham acting like a condo HOA by arranging daily resort maintenence and paying utilities and then acting in a mangement capacity by arranging maintence in the rooms and arranging cleanings after our stays.
I pay dearly for these services.....as you all know.

I advertise the location, plan the booking, sometimes at 13 or 10 months in advance, advertise for guests, speak to guests, gather guest information, collect the payments, deposit the payment, BUY a guest certificate, sometimes PAY for housekeeping credits, email guest the confiramtions and answer any questions, verify with resort that they have correct guest confirmations and sometime arrange rooms (families want to stay on same floor, guest want lower floor, guest needs pack & play..etc...) pay my maintenence fees.

I am trying to deduct maintenence fees, guest certificate fees, housekeeping costs, advertising cost, phone costs from the income.

Somehow the IRS agent is not hearing me - they are hearing "timeshare" and say that nothing is deductible.

Has anyone had experience with this ??

Thanks in advance
Blues.....

 

[Conan]

http://www.ustaxcourt.gov/InOpHistoric/rundlett.TCM.WPD.pdf
"[W]e have found that petitioners were entitled to deduct the activity’s expenses only to the extent of gross income under section 183 discussed above."

In other words, even though the taxpayers lost the case (their "hobby loss" deduction was disallowed) they were allowed to deduct expenses to the extent of rental income.

 

[chapjim]

http://www.ustaxcourt.gov/InOpHistoric/rundlett.TCM.WPD.pdf
"[W]e have found that petitioners were entitled to deduct the activity’s expenses only to the extent of gross income under section 183 discussed above."

In other words, even though the taxpayers lost the case (their "hobby loss" deduction was disallowed) they were allowed to deduct expenses to the extent of rental income.

The taxpayers in the linked case were outrageous, in my opinion. They did everything wrong including not presenting any records. Why would anyone go into an audit, let alone petition the Tax Court, and not present any business records?

It sounds like this family went on vacation in resorts within an hour or so from their residence, spent a little time touring the resort, maybe sitting through a presentation, then tried to claim all their costs as business expenses.

Two things that lost their case: they ignored the "ordinary and necessary" criterion for claiming business expenses; and, they made no attempt to prove they were trying to make a profit.

Compare the revenue with the expenses. They might as well have marked their return AUDIT ME in red.

 

[GeraldineT]

Didn't read the link to the case but I think in general that in the case of a "time share rental business" the expenses are always going to outweigh the income. There are so many people looking to rent their extra weeks at cost that anyone looking to do it for profit is going to have a hard time renting at a profit worth speaking of.

If the maintenance fees equal the income than any other expenses added like fax machines and cell phones and travel to the resort is going to make the "business" non-profitable and in the eyes of the IRA a bogus business for tax write offs. If you are running a legitimate business and your expenses exceed your income you would close your doors.

While timeshares may be "owned" and deeded they are nothing more than a vacation club. You pay a huge upfront cost (unless you bought resale) and then pay your annual membership which in turn entitles you to so many days/weeks of lodging.

Not sure of the specifics of the OP but if you write off a $70 a month cell and $30 a month internet (for advertising) that $1200 a year is often 50% of the maintenance and may be more than net profit from the rental income (depending on the number of points owned).

If people buy a timeshare thinking they can turn it into some sort of for profit business they are in for a rude awakening.

JMO!

 

[Conan]

The point of the hobby loss rules is you can't use a loss (expenses that exceed gross income) to shelter other income. That's what the people in the ruling tried and failed at.

The standard story is some high paid executive buys a horse farm in Virginia and spends a million or two on the stable operations. The executive can use those expenses to offset income from stud fees and so forth, but once the horse farm income is reduced to zero that's as far as it goes.

So the OP deserves to apply maintenance, advertising, etc. to reduce timeshare rental income to zero, but maybe not as a net loss that would shelter non-timeshare income.

 

[bluzin1]

I have not received her written decision, but per our conversation - no deductions - -0- - will be allowed because it was "managed" by Wyndham...
even my CPA is scratching his head....

Thanks for the IRS website link..
V useful for my situation...

Blues

 

[chapjim]

I have not received her written decision, but per our conversation - no deductions - -0- - will be allowed because it was "managed" by Wyndham...
even my CPA is scratching his head....

Thanks for the IRS website link..
V useful for my situation...

Blues

And you paid for the management services. And the housekeeping services. And security. And building engineering and maintenance.

Sounds like she needs remedial study at H&R Block.

 

[j1ceasar]

audit

you have at least five further steps past the initial auditor... USE them its the law! the auditor has to explain them all to you as well and you have a consumer help line for you as well.

 

[JudyS]

A question for the original poster -- are you trying to claim an overall loss from your timeshares, or did you make a profit?

(Also, you shouldn't use your email address as your TUG User ID -- it will attract spam.)

 

[Dave M]

I responded to your e-mail message, but didn't realize you were renting the timeshare.

Yes, you are definitely entitled to a deduction for expenses up to the amount of the income. If expenses exceed your income, you cannot claim the loss, for the reasons cited by the IRS. However, your CPA should be able to show the IRS in about 10 seconds the law that applies to allow expenses as a deduction, but not allow a loss from the rental. If your CPA can't do that, you need a new CPA!

Dave

 

[bluzin1]

I have income,
I would just like to deduct my expenses from income...
No depreciation was taken. No losses taken.

Thanks for your question.

 

[Keep Traveling]

Whyint you give is the details of what you made in rental and deductions

For example, If its 600 rental and 500 expenses it's fine

However if it's 600 in rental and anything over 600 it's not

 

[sunshinevalues]

I have donated our timeshare to a charity- and have been able to deduct maint fees under charitable donations-- but not any deductions with rentals of my timeshare.

 

[DeniseM]

I have donated our timeshare to a charity- and have been able to deduct maint fees under charitable donations-- but not any deductions with rentals of my timeshare.

I hate to tell you this, but this is not an allowable tax deduction.

More info. - http://www.tug2.net/advice/TUG_Taxes_and_Timeshares.htm

 

[Dave M]

Denise is correct. No deduction is allowed in connection with the donation of the use of a week at a timeshare, vacation home or other personal-use property that you own. See Denise's link. Also see the "Partial Interest in Property" discussion starting on the bottom right of page 8 and, specifically, Example 2 on page 9 of this IRS publication for more info.

 

[BocaBum99]

I have donated our timeshare to a charity- and have been able to deduct maint fees under charitable donations-- but not any deductions with rentals of my timeshare.

If the IRS audits you, you will have to pay a penalty and interest. In the calculations I have seen, it amounts to about double what you originally took as an illegal deduction. Or, you can submit an amended return and they might waive some of those fees.

 

[BocaBum99]

I responded to your e-mail message, but didn't realize you were renting the timeshare.

Yes, you are definitely entitled to a deduction for expenses up to the amount of the income. If expenses exceed your income, you cannot claim the loss, for the reasons cited by the IRS. However, your CPA should be able to show the IRS in about 10 seconds the law that applies to allow expenses as a deduction, but not allow a loss from the rental. If your CPA can't do that, you need a new CPA!

Dave

I don't think she needs a new CPA. I think she needs a new IRS agent.

 

[esk444]

If the IRS audits you, you will have to pay a penalty and interest. In the calculations I have seen, it amounts to about double what you originally took as an illegal deduction. Or, you can submit an amended return and they might waive some of those fees.

Your chances of getting audited are less than 1% for most individuals. If the taxpayer made a good faith error in tax treatment and it isn't more than 25% of their tax liability for that year, it just doesn't make any sense to file an amended tax return.

No one files the perfect tax return all of the time, not even CPAs. You just learn and do it right the next time.

 

[esk444]

Somehow the IRS agent is not hearing me - they are hearing "timeshare" and say that nothing is deductible.

Has anyone had experience with this ??

Thanks in advance
Blues.....

I've had issues with inexperienced revenue agents that misinterpreted simple Internal Revenue Code provisions. Sounds like he is misapplying the passive activity loss rules. Honestly, if you point him to the TUG tax page and this thread, he'd probably back off. If not, I might ask if he can consult with his supervisor or a more experienced agent for a second look in a diplomatic way.

If worse comes to worse, you can just ask for the 30 day letter and have it go to appeals, where it will get reviewed by an experienced mid-level revenue agent. Revenue agents hate getting reversed and I'd be surprised if he wouldn't put some more effort in figuring out the issue (or consult with more experienced agents) if he definitely knew you were going to appeal. Most ridiculous errors by revenue agents are reversed at the appeals stage, if it gets to that point. Those guys and gals know that a lot of revenue agents can be clueless in a lot of areas and aren't shy in reversing a proposed deficiency.