Did you expense the lap dances?

Not long ago, I came across this online gem that has been floating around for while.  The spoof of the most well known scene of the movie "A Few Good Men" questions the whether lap dances at a strip club can be reimbursed as a business expense.  

The video is entertaining, but a more substantive discussion on the issue can be found at Bloomberg.com. The article correctly identifies the questions as whether a lap dance is an ordinary and necessary business expense under Internal Revenue Code section 162 and whether the expenses can be adequately substantiated.  The article generally concludes that a claimed lap dance deduction will not likely hold up on audit.  However, it is a fact based inquiry that will depend on the circumstances.    

 Link to the video: http://youtu.be/xJ_roB9j_B4 

Can the IRS do more with less?

President Obama has signed the Omnibus Spending Bill which will fund the U.S. Government through fiscal year 2014.  This bill gives the IRS $11.3 billion to fund its operations.  This is a reduction in IRS funding levels by $526 million compared to the previous year.  While the reduction is small in comparison to the total funds allocated to the IRS (only 4.4 percent decrease), it is still a substantial decrease in the funding levels.  

What does this mean?  The IRS will be forced to do more with less.  In addition to undertaking additional responsibilities under the Affordable Care Act, the IRS has been committing substantial resources to combating identity theft.  Of course, they will still be involved in tax audits, collections and enforcement of the tax laws.  

Responsibilities are growing, but the budget has been cut, so where will the sacrifices be made?  

Hiring will likely be at a minimum and some employees may be reassigned to cover the growing responsibilities of the agency.  As a result, the problem will likely be seen heavily in IRS "customer service." If the IRS cannot absorb the reduced funding through increased efficiency, it will mean that IRS auditors, collection agents and other representatives will not be able spend enough time to adequately work a case. Trying to do so would result in an increasing backlog such that tax cases could draw to a virtual standstill. Therefore, IRS employees will be forced to spend less time on cases than before. Don't misunderstand however, this is not a good thing.  It may become more difficult to thoroughly get to the bottom of complicated legal or factual issues.   

Someone dealing with an IRS problem will have to watch their case to make sure that it is getting the attention it requires.  In doing so, make sure to comply with deadlines set by the IRS agents and follow up regularly to ensure that your case is not being sidelined in favor of a squeakier wheel.  You won't be able to overcome all delays, but letting the IRS know that you are paying attention to your case will help ensure that they pay attention to it as well.  If you run into obstacles, the Taxpayer Advocate Service may be helpful as well.  Of course, they are also facing the budget cuts and will have delays of their own.