I've been asked to file a friend’s tax returns for the years 2000-2003. All other tax year returns have been filed on time. He is self-employed and on all prior year returns he claimed the Home Office Credit and is eligible to take this credit on these years also.
Personal tragedy's occurred during these years and bottom line is he has "No Receipts" for any of his expenses! All records were in a storage unit that he lost.
Since his expenses are relatively similar each year I plan to report similar deductions on these returns. The Home Office credit is essential to his return each year to reduce his tax liability.
I'm concerned claiming this credit may raise a red flag and then also question the expenses that there are no receipts for.
If I don't take it he owes. Plus he'll owe all the penalties and interest, which is a lot. If I take it am I putting him at risk for losing all his business deductions? What happens when records are lost or destroyed?
I would appreciate any thoughts any of you might have on which road I should take.
Thanks so much,
TJ

Well, in my opinion you are probably correct in being concerned about the Red Flag issue. But, clearly, you have a duty to your client/friend to deduct what may have been reasonable business expenses. If you think that the client has had a home office and you have confirmed the use is being used exclusively for business purposes, then go ahead and claim what the client believes are reasonable expenses.

The IRS will allow what it considers ordinary, necessary and reasonable expenses pertaining to the Home Office Expense. So, I would go ahead and deduct what seems reasonable and necessary expenses.

Good luck!

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