Your client owns a 3-bedroom home with a 2-car garage in a suburb of Tucson, Arizona. Although the home office rules are strict on deducting expenses, you have determined that your client satisfies these rules. Her home office occupies the spare bedroom in her home, and it comprises about 480 square feet of her 2,400 square foot home. The garage is an additional 480 square feet.

Your client is interested in claiming the maximum allowable deductions for her home office. In reviewing your client’s tax return for last year, you noticed that she claimed a deduction equal to the full amount of her mortgage payment on the house. Your client did not, however, deduct any other expenses associated with her home office. She did not maintain detailed records and was concerned that the IRS might think that she was exaggerating her other expenses if she just “ballparked them” without adequate supporting documentation.

a. Are there any issues that you want to challenge or research? Explain?

b. Should you inform the tax return preparer who filed her return last year about these errors? Explain?

c. What other advice should you give to your client? Explain?

d. Assume that the prior-year tax return preparer is a friend of yours, but he really screwed up and should compensate your client if she incurs tax penalties and interest. Would you inform your client about her rights against your friend? Should you inform your friend about this? Explain?