Wendy Arsenault Letter to the IRS

Below is a copy of a 2010 letter Massachusetts family child care provider Wendy Arsenault sent to the IRS during her IRS audit. After first receiving records and receipts from Wendy the IRS auditor initially denied many of Wendy's business deductions. After consulting with me, Wendy wrote this letter back to her auditor and included additional information. Child care providers should take note that you can push back against the IRS like Wendy did. Wendy's records were fine and the IRS eventually agreed with her.

Dear S. Witherspoon,

I've sent information as requested.  In order to make sure all points made in your last communication with me are addressed; I'm going to type your comments in quotes below followed by my answers.  I hope this does not seem rude, but seems the best way."

You also sent to me copies of your daily mileage record.  You can not take both vehicle expenses and milage.  You must take one or the other."

~I did not send any vehicle expenses.  Only the daily mileage record (as messy as it was).  The only other receipt that was sent having anything to do with a vehicle was a receipt for a truck rental.  I rented a truck in order to transport large items (used stove, refrigerator, dishwasher etc) to the new daycare kitchen.  This expense was not listed under vehicle, but was listed under equipment rentals."

You send to us numerous copies of receipts - some have expenses that seem to be more personal than business related (such as cat food, hair brushes etc)

~Yes, some receipts do have personal items along with business items.  However, as explained the only items on each receipt that are being claimed are highlighted.  The total amount claimed is listed at the top of each receipt.  The total amounts of those receipts (with personal items) are NOT claimed.  I'm told that the vast majority of family childcare providers do this.  I'm also told that there is no law that states it cannot be done this way.  Again, the items claimed on each receipt are highlighted (in the copies the highlights will look darker) and a total amount claimed is written at the top of each receipt.  I hope that is understandable."

You sent receipts that were for classes, you need to send actual verification that the classes took place and that you paid for them:.:

~I've included copies of checks that went towards these classes.  We do not receive receipts for payments of these classes.  As proof classes took place I sent copies of certificates I received for classes.  Some classes (such as CPR) are taken annually, and certificates are not kept, they are replaced each year so I may not have copies of everything.  Hopefully copies of bank checks as well as certificates included will suffice.

"You also need to send actual copies of utility bills and cancelled checks/bank statements to show that you paid the utilities."

~I have sent a sampling of utility bills as well as all cancelled checks and bank statements as proof of payment.  I spoke with Mr. Excell #0142872 at the IRS phone number listed and he gave me a lot of advice.  He told me I should send a sampling of utility bills instead of copies of every single bill to simplify the process.  However, between copies of cancelled checks and highlighted bank statements there is proof of payment for ALL utilities claimed."

You sent a copy of a house cleaning log with the names of persons that you paid to clean your home, you must included the names, addresses, phone numbers and any tax ID number that may be available, along with notarized statements from them stating they performed a service for you and what you paid them."

~I have sent copies of cancelled checks as proof of payment for cleaning services.  There is a more detailed explanation attached to the checks.  Obtaining all the items requested above is not possible.

Although you did not request any information from the person who teaches a music class to my daycare I have included a statement from her.  Since she still teaches in my daycare it was possible to do."

You need to sent to us an official statement from the food services program that works with you to provide food to your daycare.  They need to tell us exactly how much that allot you for food expenses and if they reimburse you how much.  The document must have the name, address, telephone number and signature or stamp of an official representative."

~Statement is included.  I've also put in a brief explanation of what service the federal food program is.  I hope this is helpful."

You must send cancelled checks or banking statements/credit card statements to show that you actually paid ay expenses that you are claiming."

~Hopefully I have done that.  Please note that a few of the expenses sent previously were paid in cash, as listed on the receipts.  These were items that were purchases second hand  and added to the new daycare space.  Those are the exception.