The purpose of this document is to

provide information to help taxpayers

recognize home-based business tax

avoidance schemes.

 acts About Home-Based

 Businesses

In order to deduct expenses related to

the business use of your home, you

must carry-on a “bona fide” business,

as well as meet other specific

requirements. Even then, your

deduction may be limited. To qualify to

claim expenses for the business use of

your home, you must meet both of the

following tests:

 Your use of the business part of your

home must be:

-Exclusive,

-Regular, and

-For your trade or business,

AND

 The business part of your home must

be one of the following:

- Your principal place of

 business,

- A place where you meet and

 deal with customers in the

 normal course of your trade

 or business, or

- A separate structure you use in

 connection with your trade or

 business.

 ome Based Business Tax

 Avoidance Schemes

Scam home-based businesses and tax

avoidance promotions have gained

popularity over the last few years for a

variety of reasons, including:

 The desire of individuals to reduce the

amount of taxes they pay.

 Unscrupulous promoters selling tax

avoidance and audit assistance

packages.

 Taxpayers being advised they can

deduct all or most of their home and

other personal assets as business

expenses.

 ersonal Expenses or

 Business Expenses ?

Most taxpayers with home-based

businesses accurately report their income

and expenses, while still enjoying the

benefits that a home-based business can

offer.

However, some individuals have

received advice that they can operate

any type of unprofitable “business” out

of their home and claim personal

expenses as business expenses. Nondeductible personal living expenses

cannot be transformed into deductible

business expenses, regardless of how

convincing the information in marketing

materials may seem.

 he following are a few examples

of items that are generally not

deductible as business expenses:

 Deducting all or most of the cost and

operation of a personal residence.

For example, placing a calendar,

desk, file cabinet, telephone or other

business item in each room does not

increase the amount that can be

deducted. Taxpayers should also be

aware of depreciation recapture

rules when assets are later sold.

 Paying children a salary (e.g. for

answering telephones, washing

cars, etc.).

 Deducting education expenses

from salaries paid to children

wrongfully claimed as employees.

F

H

P

T
 Deducting excessive car and truck

expenses when the vehicle was used for

both personal and business use.

 Deducting personal furniture, home

entertainment equipment, children’s toys,

etc.

 Deducting personal travel, meals, and

entertainment under the guise that

everyone you encounter is a potential

client.

For more information on home business

expenses that are deductible, go to:

http://www.irs.gov/smallbiz

Search for: business expenses

Any investment scheme or promotion that

claims to allow a person to deduct what

would normally be personal expenses and

not ordinary and necessary business

expenses should be considered highly

suspect. As always, a business must truly

exist prior to claiming any business

expenses.

 eed Additional

 Information?

If you have questions on how to amend

your return, please contact the Internal

Revenue Service at:

1-800-829-1040.

For questions regarding specifics on tax

schemes, or if you wish to report a possible

scheme, call:

1-866-775-7474 or send an e-mail to:

irs.tax.shelter.hotline@irs.gov

The following IRS web sites provide

additional information on home-based

business tax avoidance schemes and

other related issues:

http://www.ustreas.gov/irs/ci/

The following publications may also

provide assistance on these issues and

can be found at:

http://www.irs.gov

Publication 587, Business Use of Your

Home

Publication 463, Travel, Entertainment,

Gift, and Car Expenses

Publication 334, Tax Guide for Small

Business

Publication 17, Your Federal Income Tax

for Individuals

N

Business Card Working To Put Service First

Small Business and

Self-Employed Division

Home-Based Business

Tax Avoidance Schemes

?

IS IT

 GOOD

 TRUE

 TOO

TO BE

Internal

Revenue

Service

Department of the Treasury

Internal Revenue Service

Publication 4035 (6-2002)

Catalog Number 34333A