Tax Reduction Podcast

Episode 11. IRS Audits Augusta Rule and Wins

• Boris Musheyev • Episode 11

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"Unpacking the Augusta Tax Strategy! 🏠💼 Dive into the recent development where IRS Audits Augusta Rules and Wins. The Augusta Tax Strategy has long been a favorite among property owners and business professionals. But what happens when the IRS challenges it?

Covered in this episode:

- A deep dive into the background of the Augusta Tax Strategy and its benefits.

- Insights into the IRS audit, the key arguments, and the final verdict.

- What this means for you: the implications, potential changes, and actionable advice.


Whether you're a seasoned real estate professional, a business owner, or just someone keen on tax-saving methods, this episode is a must listen. Understand the changes, protect your interests, and strategize better with our comprehensive breakdown. 

Don't forget to hit the subscribe button for more in-depth analysis, updates, and strategies in the world of tax planning and financial management.

I've put together this FREE resource for you:

7 Write-Offs Every S-Corporation Business Owner MUST Know
🆓 Download FREE PDF here: https://7taxwriteoffs.com/

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*Disclaimer This material & presentation content is for informational and educational purposes only. This material and presentation content is designed to provide general information regarding the subject matter covered. It is not intended to serve as legal, tax, or other financial advice related to individual situations. Because each individual’s legal, tax, and financial situation is different, specific advice should be tailored to the particular circumstances. For this reason, ...

Speaker 1:

IRS audits the Augusta 14 day rental rule and IRS wins. They shoot and they score and you know what, if you are using an Augusta tax rule in your business, you might have a problem with the IRS. Now we're gonna talk about exactly what was IRS auditing. Why did this business lose to the IRS by renting out their excuse me, their home for 14 days on the Augusta rule? And actually, to be honest with you, I kind of love this court case that just came out, because it teaches us and tells us everything that IRS is looking for when a business owner wants to use the Augusta rule. We're gonna break everything down into pieces and you, the business owner, will now sleep better at night, knowing how to actually use the Augusta 14 day rule in your business. Ready, let's go.

Speaker 2:

Welcome to the Tax Reduction Podcast for Money Making Entrepreneurs with Boris Mousheev. Boris has helped entrepreneurs across the United States collectively save millions of dollars in taxes with the power of tax planning and advisory. The only way you, the business owner, can save money on taxes is by using proactive tax strategies, and this podcast is all about saving you money on taxes. Boris will share with you in depth and easy to understand tax reduction strategies that you can implement in your business within 30 days or less. Let's jump into today's episode.

Speaker 1:

We're gonna talk about what is the Augusta rule.

Speaker 1:

For those of you that don't know and if you're a business owner, you must watch this we're gonna talk about the facts, okay, of Synopoly versus Commissioner. That's the court case that we had that recently came out and that actually talks about what the hell did they do wrong with using the Augusta rule. How in the world were they able to do $290,000 in Augusta reimbursement? And then we're gonna talk about tax courts decision. Now, this right here, ladies and gentlemen, not only is it a good tax court decision, but it's also good for us to follow as a rule, to take it basically use it as a strategy. Right In this court decision, irs basically gave us a tax strategy to follow. That's why I love this court case. Now let's talk about what is an Augusta rule. Now, augusta rule is basically a rule in our IRS tax code that says that anybody in America can rent their home up to 14 days tax-free. That means if you've got a big home and let's say, for example, you've got an extra room in your home or an extra you know, like I don't know in a backyard, like an extra dwelling unit, and you rent it out short-term rental, whatever that may be, and the rental is on the 14 days during the year, irs says don't worry about it, you do not have to pay any income tax on it. Now the rule really came about because of a town in Augusta, georgia, right when the Gulf Torment Act takes place. And what happens is that a lot of people used to come there and there was not enough places to stay. So they start renting out places in people's homes and then people had to pay taxes on the amount of money that people were paying them to stay there. So they came up with this rule, said you know what, if somebody's renting a home from you up to 14 days, you do not have to pay any income tax on it, and that's it. That has been a law, that is an IRS tax code and that is what that is.

Speaker 1:

Now what happened is that when you do receive that income up to 14 days, it's totally tax free. You still have to report it on what's called a Schedule E. A Schedule E is where you report all of your rental income and expenses. Now what happens is that you report that income and then you take a deduction for the same amount and you're saying, hey, I'm taking an Augusta rule deduction, so I don't pay any income tax on it. That's in a plain language so that you can understand what that is. And that's it you do not pay any income taxes on it.

Speaker 1:

Now, recently, a lot of business owners have been seeing this as an opportunity and a lot of tax advisors have seen this an opportunity to advise their clients and say hey, by the way, if you own a business, you can actually rent your home to your business and get a tax free rental, your business gets a deduction and you don't pay any income tax on it. Now, is this really legitimate? The answer is absolutely, but you've got to do it the right way and that's why we have a tax court decision to talk about that Now. You have probably seen a lot of videos on YouTube, on Instagram, on TikTok, promoting this without proper guidance to business owners, and that I believe exactly what happened in this tax court case over here Synopoly versus Commissioner and we're gonna talk about it right after this break.

Speaker 2:

If you have a tax preparer, then you do not have a tax advisor. The only way you can save money on taxes is by using proactive tax planning strategies that only a tax advisor can give you. Boris put together a free PDF for you, the business owner Seven tax write-offs every S corporation business owner must know. In this PDF you can find seven tax strategies that you can start using in your business to instantly start saving money on taxes. Click on the link in the description below for a free download.

Speaker 1:

Let's talk about this court case, right? So the facts are, it's Synopoly versus Commissioner. I hope I'm pronouncing that right Now. Synopoly is a business owner, along with two partners, of a company called Planet, and it was set up as an S corporation. It had three owners probably still has three owners, okay and they were audited for the years of 2015 and 2017. Now I wanna make a very important point.

Speaker 1:

A lot of business owners think and I've come across a lot of business owners with which I chose not to work with they think that it's okay to do something wrong on their taxes because IRS doesn't audit them. Because one year has passed, hey, nothing happened, let's do it again Now. You are completely wrong if you are that business owner, because what happens is that IRS does audit. It just takes a little bit of time, right? They're not gonna audit you, for example, for last year, necessarily, but they might audit you for three years ago. That's exactly what happened with these folks, right? They got audited for years of 2015 to 2017. So it's not like the year passed and if IRS didn't audit you, then that's okay. No, you always have to do things right way in your business. You cannot cheat on taxes, okay? No cheating on taxes Just because thinking, well, last year was totally okay. If you cheated last year and thought nothing happened, just wait for it. Okay, not trying to scare you, but I'm just kind of sharing with you the things that I've run into with other business owners.

Speaker 1:

Now over here we have three owners. Okay, they were using the Augusta rule. They were holding the business meetings. Now, the backstory behind them is that they were in different locations. It was very hard for them to always meet. Two owners would come, another owner would not come, or the other two partners could show up, another partner could not show up, so they needed them business meetings. So they decided hey, I honestly don't know how they came up with this, probably they saw a reel somewhere, right Like, hey, why don't we meet in each other's home and we reimburse ourselves?

Speaker 1:

Now, initially, dr Sinopoli made us research and found out that you know, square footage a cost per square footage is $1.83. And they're like you know what? We can now reimburse ourselves $1.83 for, you know, for using our home. And that was totally okay. But they only did it for a little bit. And then, very quickly, they started just reimbursing each owner $3,000 to himself using the Augusta rule three owners $3,000 per month. There was no substantiation, no competitive rates. Now, if you're a business owner that wants to use the Augusta rule, irs says, listen, and we're going to talk about that. Right. Irs says, listen, you've got to first find out how much are you going to reimburse yourself. You got to get competitive rates. These guys didn't do that and they're reimburse themselves a total of $290,000. Okay, using the Augusta rule, $290,000. Now you might say, well, boris, what if it is legitimate? What if they did meet and it really is $3,000 because they have a big home? Well, guess what? We're going to talk about that exactly in a tax course decision right after this break.

Speaker 2:

If all your accountant does is taxes, you may be overpaying in taxes by thousands of dollars every year. Every week, Boris releases a tax strategy on his podcast so that you, the business owner, can pay less in taxes every single year. Be sure to subscribe to our podcast to be notified when a new tax strategy is released. If you're ready to work with a tax advisor on your tax strategy and planning, be sure to schedule your call by heading over to wwwtaxplanningcallcom. Again, that's wwwtaxplanningcallcom.

Speaker 1:

So let's talk about the tax course decision. By the way, the revenue agent that was auditing this tax return 2015 to 2017 for Synopoly his name was Jacob Bergus. Okay, now, the tax course decision was as follows. They looked at the section called 162A of the IRS and the section code says in order for you to take any business expense, it has to be ordinary and necessary. Was it ordinary and necessary in this case, in Synopoly's case, between him and two other partners to be able to meet and to conduct business? The answer came out to be yes, because they really needed to meet and do business. Right, they couldn't always work out a time and a schedule where to meet, so they've decided to meet at each other's home and use the Augusta rule. Then the IRS moved on and said okay, in order for it to be ordinary and necessary, it also has to be reasonable in nature. Reimbursing yourself $3,000 for a use of your home for each meeting is that really reasonable? So our revenue agent, jacob Bergus, decided to take it a step farther and he said you know what? What an eye doer? Research in the area and find out what is really the square footage cost or a venue if you are to rent out a conference room. Okay, to rent out a conference room. How much would that cost? Because these guys have been reimbursing them $3,000 a month. Jacob Burgers also took an account. He found out how many people attended the meeting and they said, well, it's only been Owners. Occasionally there may be some other people occasionally, and occasionally there were other family members In the house while the meeting was taking place. So he's like, oh, okay, so it's not like the home was used exclusively for the meeting. So he did some research and he came out actually with numbers way below $500 per meeting. So so they said okay, the amount that you've been reimbursing yourself three thousand that's already unreasonable. Okay, then, now that we have determined that it may be ordinary, necessary business expense, iris moved on to find, to find evidence Did you really meet?

Speaker 1:

Okay, and apparently, based on the notes that I've read, they, their stories were all over the place, right? They? They couldn't really come up with the credible evidence that they met and they also could not substantiate To the revenue agent as of what business meetings were really discussed, right? What? Like what was really discussed about the business? So this, when I look at it, I see an opportunity for a tax strategy to be used right. So what I learned from this?

Speaker 1:

Alright, I can use an Augusta rule as long as ordinary necessary. I can use the Augusta rule as long as my reimbursements are reasonable. That means I have to look around in my area and find out how much would something for my home excuse me Go for. If it's $500 for a home like mine and I use it for Augusta meetings with my business partners, employees, you know, company business development, whatever that may be, then that's perfect. And then I need credible evidence. Okay, and that is exactly actually what we do for our clients. We have them sign in.

Speaker 1:

Who is attending the meeting, what was discussed? What was the outcome of that meeting? Okay, what business was conducted? And that's exactly what IRS is looking for. So they could not find any evidence. They couldn't understand what business was conducted. The only evidence they could find, I think it was from one of the partners For 2016. They had notes on 12 of those meetings, so they were able to the IRS. Let them take a $6,000 Augusta rule reimbursement only 2016 and 2017. They were barely able to substantiate nine meetings at $500, which is $4,500 2015. The revenue agent Jacob Berger's just crossed her off the list like we're not letting you take that deduction. So you went down from $290,000 to $10,500.

Speaker 1:

Now, ladies and gentlemen, if you are using an Augusta rule in your business, it's totally okay, but you have to understand that IRS wants to make sure that you're following the section 162a Of it being ordinary and necessary for your business and the cost of reimbursement has to be reasonable in nature. You can't make things up. Irs is looking for credible evidence. Irs is looking to know what business was conducted. This is a perfect court case. Synopoly versus Commissioner is a perfect court case. That kind of outlines for us how to use this tax strategy. Your tax preparer, your tax guy, even probably your tax planner they just delivered your tax plan for one time, kind of a one-time thing did not explain these things to you. I'm here to tell you, to urge you, to explain to you, to ask you please Follow the IRS rules and regulations and IRS will allow you and even actually applaud you for taking these deductions, so using these tax strategies as long as you are following the law. Thank you and until the next time.

Speaker 2:

That's it for today's episode. Be sure to check out the description below for some free tax reduction resources that Boris put together for you. If you're ready to work with a tax advisor on your tax planning, be sure to schedule your call by heading over to wwwtaxplanningcallcom. That's wwwtaxplanningcallcom. And be sure to subscribe to our podcast to be notified when the next strategy is released.