Banker & Tradesman (subscription only) ran a story this week on the subject of mortgage loan originators subject to DOR audits. The story also discussed how DOR generates taxpayer audits in general.
The piece was pegged to a notice from the Massachusetts Mortgage Bankers Association urging loan originators to “consult with your tax accountant or adviser” to best preserve the deductibility of appropriate unreimbursed business expenses for outside sales people. By the way, it is the IRS that defines what are acceptable unreimbursed expenses.
The story posed the question: Was DOR singling out mortgage loan originators for special attention? The answer, as reported in Banker & Tradesman, and we’ll repeat it here, is simply, “no.”
DOR uses a program called Discover Tax to review information on tax returns against many different kinds of databases. If, for example, a tax return reports relatively low income, but the taxpayer owns a $1 million home and two Bentleys, Discover Tax will flag that incongruity and generate an audit. DOR has no idea what type of employment or employer the taxpayer has; it’s the numbers that jump out.
Similarly, if a taxpayer has an unusual amount of unreimbursed business expenses relative to income, Discover Tax will recognize that and kick out an audit.
Any individual taxpayer — including mortgage loan originators — may encounter a problem if they claim unreimbursed business expenses on the same basis as afforded to outside salesman.
DOR’s view, articulated in 1989 and maintained since then, is that outside salesman sell for their employer outside the employer's office. Thus, a mortgage loan originator who works in an office is not an outside sales person.
If mortgage loan originators claim unreimbursed business expenses in amounts that bubble up to an audit after a Discover Tax run, they face the question not only of justifying and documenting the expenses, but they must also make sure of their legitimate claim to them in the first place.