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New Tax policies starting 2011, insight?

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SapereAude
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As a small business owner who does my own taxes this is guaranteed to be a nightmare. It seems obvious to me that some of these things are happening 1)to make people no longer able to do their own taxes hence "creating" jobs 2)by making rules even more unclear and often even arbitrary to open up almost all businesses to audit no matter how well they keep their books.

If any of you are in accounting I was hoping to have this explained:

Economic Substance Doctrine.

“The IRS is now empowered to disallow legal tax deductions and maneuvers merely because it judges that the deduction or action lacks ‘economic substance.’”

What, I ask, in the wide world of sports does this mean?

I am taking it to mean that it is up to the individual auditor to make a judgement call on whether they like my deduction or not, despite its being perfectly legal.

Am I correct?

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The basic idea behind the doctrine is that an action must have an economic purpose other than reduction of tax liability. In the massive Obamacare bill, there was a section smuggled in, sect. 1409, that puts this at the level of law, not just IRS policy, and it outlaws "abusive tax shelter". The crucial consideration for applying the law is whether "the transaction changes in a meaningful way (apart from Federal income tax effects) the taxpayer’s economic position, and the taxpayer has a substantial purpose (apart from Federal income tax effects) for entering into such transaction". Apparently, there's no way to know if this test must be passed, therefore you must assume that it must always be passed. It's not obvious to me that there is any real difference between before and now.

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The basic idea behind the doctrine is that an action must have an economic purpose other than reduction of tax liability. In the massive Obamacare bill, there was a section smuggled in, sect. 1409, that puts this at the level of law, not just IRS policy, and it outlaws "abusive tax shelter".

...

It's not obvious to me that there is any real difference between before and now.

It seems this makes the violation punishable, since it's no longer just policy, but law now. (?)

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Honestly, while I am first and foremost inclined to call BS on this type of provision, I am forced to wonder if this is even enforceable. I mean, jeez, what would the burden of proof even be?

Edit: Took a bit of time to educate myself on the matter, and Odden is probably right in that nothing is functionally changed. The only (probable) difference is that now, if you happen to get auditted for "substance over form" abuses, it'll include additional? criminal penalties.

Edited by Markoso
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