In order to find a tax professional to answer your questions, we spotlight interview our tax experts. This week, we interviewed tax expert John Stancil headquartered in Lakeland, Florida.

John has been practicing for over thirty-five years and is a top tax expert and tax writer. He also serves on our AskTaxQuestion.com panel of tax experts. Given his diverse client base with individuals, small business and non-profits, John is also an expert on foreign earned income, small business healthcare tax credits, and church and clergy tax issues.

Can you tell us about your area of tax specialization and why you are so passionate about it?

My area of specialization is church and clergy taxation. This is an area of tax that is:

• Widely misunderstood,
• Frequently done wrong,
• Has the potential to cause serious damage to the financial situation for ministers and churches.

My church has always been a large part of my life and the realization that this area of tax was misunderstood and misapplied led me to apply the saying “Find a need and fill it.”

What do you love teaching your clients about taxes?

As a retired professor, I love teaching, so teaching my clients the right way to handle tax matters is an extension of that. I see benefits of saving my clients money by taking proper tax deductions and keeping them out of trouble with the IRS by properly reporting income and deductions.

What is the best advice you would give to a client today?

I would tell a client to keep good records. When an event occurs, you tell yourself that you will remember it at tax time, but you may forget. Good records allows you to file a complete, correct return. In addition, if the client is audited, they have good records to back up what they have claimed on the return. Recently had a client get an IRS audit notice with a deficiency of about $25,000. Because he had good records, we were able to whittle it down to under $1,000. It was a two-year audit, and I had only prepared the second year’s return, so the good records were a Godsend.

Can you tell us about a unique tax matter you solved for a client?

Recently a minister client contacted me. He was facing his 62nd birthday. His financial advisor suggested that he go ahead and start drawing Social Security at age 62 and invest the SS monies. The advisor’s advice was take it now while there is still social security. Looking at the client’s tax return, there seemed to be some validity to the advice, but the client ran it by me before making a decision. The client’s actual income appeared to be under the $16,920 limit so he didn’t think his benefits would be reduced. As it turned out his financial advisor did not know that the client’s housing allowance counted as income for this purpose and his SS benefit would be reduced by over $4,000. In addition I pointed out to him that his benefit at age 62 would be 30% less than if he waited until full retirement age without considering any reduction in benefits due to income.

Can you tell us a story about an audit that was most memorable to you?

Two audits stand out. My pastor was being audited, and unfortunately he did not have the best of records. We drew a young auditor who was out to prove her mettle. She and I were going at it tooth and nail. She left the room to make a copy of a document. I looked back at my pastor, who was cowering in the corner of the room. He said, “John, let’s just give her what she wants and get out of here.” I responded “do you realize that will cost you about $3,000?” He then said “Fight on!” As an extension of the audit, my client had inherited a house from his mother. His attorney low-balled the value to lower any state inheritance taxes. I was unaware of this so I put the house on the books at FMV as of date of death. The IRS disallowed that, using the inheritance tax value assigned by the attorney. So we beat the IRS at their own game, and filed an amended inheritance tax return with a proper valuation.

In another audit, the IRS wanted a face-to-face. So we made arrangements for the audit, the client got it rescheduled so I could be there. On the appointed day, we arrived at the IRS office and rang in as directed. The phone was answered by a supervisor who seemed rather flummoxed by our presence. She came out to meet us and told us that the designated auditor was on indefinite leave and thought they had contacted everyone who had an appointment with him. All the time, it was like they were walking on eggshells when his name was mentioned. The supervisor called in another auditor to hear our presentation. She made it clear that she was merely taking notes on what we had to present and when the other auditor returned she would turn the information over to him. Meanwhile, the supervisor is double-checking to see if anyone else might have an appointment they didn’t know about. So we made our case and I asked when the original auditor was returning. I was told, rather tentatively, “He is scheduled to return next Thursday.” The next morning, bright and early, I got a phone call from the auditor who informed me that the original auditor was not returning and she would be handling the audit. It turned out well for my client as we were able to eliminate most of what the IRS said he owed.

What is the worst tax law you ever encountered? 

I think the laws on gambling winnings and losses is a very bad piece of the tax code. A taxpayer must report all gambling winnings as “Other Income” on line 21 of the 1040. Losses are deductible to the extent of winnings as Miscellaneous Itemized Deductions not subject to the 2% limitation on Schedule A. But it the taxpayer does not itemize deductions, he or she loses that deduction, but still reports the income in full.

If you could change one tax law what would it be?

I wrote a blog last May that listed what I called “Nine Tax Code Head Scratchers.” Anyone of those nine could be used to answer this question. But I think the treatment of unreimbursed employee business expenses is one I would change if I could. Employee business expenses are deductible as miscellaneous itemized deductions. An employee who doesn’t itemize doesn’t get this deduction and much of it is eliminated by the 2 percent threshold. This especially penalizes an employee who is under a non-accountable plan. He or she pays tax on the travel allowance but can’t deduct the full amount of the expenses. No deduction if they don’t itemize.

What is the number one problem faced by small business owners and/or taxpayers today?

Tax compliance. There are two aspects to this. In the first case, there is no deliberate attempt to evade taxes that are legitimately owed. It is an inadvertent overlooking of significant tax items just because the taxpayer does not realize he or she has a taxable event. The second aspect, that  is a very worrisome is deliberate tax evasion. This needs to be dealt with –  and is otherwise known as the tax gap. I am honest and pay the full amount of tax that I owe, but my neighbor “cuts corners” and pays less than he should. That isn’t fair.

What recommendation for a Tax Proposal would you give to Members of Congress today?

Tax policy today is not just about raising revenue. Tax policy is used to achieve social objectives. For example, we can deduct mortgage interest on a home. This encourages home ownership. So I don’t think we will ever have a truly flat tax, at least not for very long. Congress cannot resist the temptation to enact some social objective through tax policy. So I would not tell Congress to scrap the income tax we have in favor of a flat tax, a VAT, or a national sales tax. Simplify the code. I recently encountered a client who was selling his rental home. He came to me for help. Turns out, he had not taken any depreciation the entire time the house was a rental. To correct this and save him some money I had to complete a Form 3115, Change in Accounting Procedure. It took me hours to do, and I don’t see how a layman could every complete one correctly. Nothing should be that complex.

What is the most unfair situation you have ever experienced a taxpayer face?

Unfair is in the eyes of the beholder. What may seem perfectly fair to me may seem unfair to you. I lost a client once. He had sold a business truck and realized a profit on it, due to the depreciation that had been taken. He didn’t see this as fair as he sold the truck for less than he paid for it. But he sold it for more than the adjusted basis. He said it was unfair. But if I were to look at what I think a major unfair situation is, it would be in the area of tax audits. The client often has done nothing wrong, but gets a CP-2000 or other IRS form. It can’t be ignored. So the client comes to me for help. I can’t do it for free, so the client pays me to get it straightened out – for the mistake made by the IRS. That is unfair.

What are taxpayers being audited on most these days in your area of expertise?

Fortunately, I don’t do a large number of audits. But it appears that the IRS is honing in on the basis of assets sold and the resulting profit or loss. Also, Schedule C filers are getting a lot of IRS scrutiny.

What is the best way for a taxpayer to contact you? 

I’m always available by email jstancil@johnstancilcpa.com. An email helps me see the entire situation as presented by the taxpayer and gives me time to mull over the situation. I don’t like giving phone advice off the cuff as I like to consider the whole picture without pressure for an immediate answer.