Meals and
Entertainment

Because you are in the selling business, you may take business associates to lunch or otherwise entertain them. The cost can be a deductible business expense. However, certain conditions must be met before you can take a deduction for business meals and entertainment, and you generally can deduct only 50% of the cost. This section discusses those rules.

Meals.   Include as meals the amounts spent on food and beverages and the taxes and tips on those amounts. Generally, no deduction is allowed for an entertainment-related meal unless you or your employee is present when the food or beverages are provided.

Entertainment.   Include as entertainment any activity generally considered to provide entertainment, amusement, or recreation. This includes entertaining guests at nightclubs; at social, athletic, and sporting clubs; at theaters; at sporting events; on yachts; and on hunting, fishing, and vacation trips or on similar outings. It can also include meeting your customers' personal, living, or family needs, such as providing meals, a hotel suite, or a car. However, see Not directly related, later.

Directly Related
or Associated

To be deductible, meal and entertainment expenses must be ordinary and necessary expenses of carrying on your direct-selling business and you must be able to prove them as explained later under Proving Your Deductions. Unless certain exceptions apply, you must be able to show that entertainment expenses (including expenses for entertainment-related meals) are directly related to or associated with the active conduct of your business.

For more information, see chapter 2 of Publication 463.

Directly related.   For entertainment expenses to meet the directly-related test, all the following must apply.

• You had more than a general expectation of getting income or some other specific business benefit from the expense.
• You engaged in business with the person during the entertainment period.
• The main purpose of the combined business and entertainment was the active conduct of business.

You do not have to show that business income or another business benefit actually resulted from each entertainment expense.

It is not necessary to devote more time to business than to the entertainment. However, if the business discussion is only incidental to the entertainment, it does not qualify as directly related.

Example.   You are a direct seller of women's cosmetics. A state women's organization is holding its annual convention in a local hotel and you decide to display your products in a hospitality room in the hotel. You also provide entertainment and give out product samples. You can deduct the cost of the hospitality room and entertainment provided.

Not directly related.   Generally, expenses are not directly related if you are not there, or there are substantial distractions that prevent you from actively conducting business. The following are situations where there are substantial distractions.

1. A meeting or discussion at a nightclub, theater, or sporting event.
2. A meeting or discussion during what is essentially a social gathering, such as a cocktail party.
3. A meeting with a group that includes persons who are not business associates at places such as cocktail lounges, country clubs, golf clubs, athletic clubs, or vacation resorts.

You may prove the entertainment is directly related by clearly establishing you had a substantial business discussion during the entertainment.

When entertainment takes place on a hunting or fishing trip, or on a yacht or pleasure boat, the conduct of business is not considered the main reason for the combined business and entertainment unless you clearly show otherwise.

Associated.   You can deduct entertainment expenses (including expenses for entertainment-related meals) that do not meet the directly-related test if both the following apply.

• The expenses are associated with your direct-selling business.
• The entertainment is directly before or after a substantial business discussion.

An ordinary and necessary entertainment expense is generally associated with your direct-selling business if you can show you had a clear business purpose for the expense. The purpose may be to get new business or to encourage the continuation of an existing business relationship. Substantial business discussion.   Whether a business discussion is substantial depends upon the facts and circumstances in each case. You must show that you actively engaged in a discussion, meeting, negotiation, or other business transaction to get income for your business or another specific business benefit.

The meeting does not have to be for a specified length of time. However, you must show that the business discussion was substantial in relation to the entertainment. It is not necessary to devote more time to business than to the entertainment and you do not have to discuss business during the meal or entertainment.

Business and nonbusiness guests.   You must divide your entertainment expenses between business and nonbusiness expenses. You can deduct only the business part. If you cannot establish the part of the expense for each person participating, you can allocate the expense to each participant on a pro rata basis. For example, if you entertain a group of 11 (including yourself)-three business prospects and seven social guests-deduct only four-elevenths of the expense.

Expenses for spouses.   You generally cannot deduct the cost of entertainment for your spouse or for the spouse of a business customer. However, you can deduct these costs if you can show that you had a clear business purpose, rather than a personal or social purpose, for providing the entertainment.

Example.   You entertain a business customer. The cost is an ordinary and necessary business expense and is allowed under the entertainment rules. The customer's spouse joins you because it is impractical to entertain the customer without the spouse. You can deduct the cost of entertaining the customer's spouse as an ordinary and necessary business expense. Furthermore, if your spouse joins the party because the customer's spouse is present, the cost of the entertainment for your spouse also is deductible as an ordinary and necessary business expense.

Lavish or extravagant expenses.   You cannot deduct expenses for meals and entertainment to the extent they are lavish or extravagant. An expense is not considered lavish or extravagant if it is reasonable considering the facts and circumstances. Expenses will not be disallowed merely because they are more than a fixed dollar amount or take place at a deluxe restaurant, hotel, nightclub, or resort.

Your meals.   Generally, you can deduct your business meal expenses while traveling away from home for business (other than lavish or extravagant amounts). However, if you entertain a business customer locally and the conditions discussed earlier are met, the cost of your own meal is deductible only to the extent the cost exceeds the amount you would normally have spent for personal purposes.

Limit

You usually can deduct only 50% of your unreimbursed business-related meal and entertainment expenses. The 50% limit applies, for example, to expenses you incur while traveling away from home on business (whether eating alone or with others), entertaining business customers at your place of business or a restaurant, or attending a business function, convention, or reception.

Taxes and tips related to a business meal or entertainment activity are included in the amount subject to the 50% limit. Expenses such as cover charges to a nightclub, rent for a room where you hold a dinner or cocktail party, or the amount paid for parking at a sports arena are subject to the 50% limit. However, the cost of transportation to and from an otherwise allowable business meal or entertainment activity is not subject to the 50% limit.

If you have one expense that includes the costs of meals, entertainment, and other services (such as lodging or transportation), you must reasonably allocate the expense between the cost of meals and entertainment and the cost of other services. For example, you must make an allocation if a hotel includes one or more meals in its room charge.

Apply the 50% limit after figuring the amount that would otherwise qualify for a deduction. First determine the amount of meal and entertainment expenses that would be deductible under the rules discussed earlier. Then apply the 50% limit to figure the deductible amount.

Example.   You spend $100 for a business-related meal. If $40 of that amount is not allowable because it is lavish and extravagant, the remaining $60 is subject to the 50% limit. You cannot deduct more than $30 (50% of $60).

Exceptions to the 50% limit are discussed in Publication 463.

Business Gifts

Giving prizes, awards, and gifts may be an ordinary and necessary part of doing business as a direct seller. In each of the situations illustrated next, you can deduct the cost as a business expense.

Situation 1.   You do your direct selling on the sales party plan. As an incentive for people to host your parties, you offer them a variety of gifts. The choice of gift depends on the success of the party-the higher the volume of sales, the more valuable the gift.

In this situation, your gift to the host or hostess is actually payment for hosting the party, and the host or hostess must report the fair market value of the gift as income.

You can deduct the cost of the gift. If you give hosts and hostesses items from your inventory or items you purchase from the company at the same time you purchase goods you sell, their cost will be included in the cost of goods sold. You cannot deduct their cost again as a business expense. However, if you purchase the gifts separately from the goods you sell, deduct their cost as an ordinary and necessary business expense.

Situation 2.   You have several direct sellers working under you. Because your income depends in part on their sales, you regularly meet with them, encourage them, and provide them with incentives and support. As an incentive to make sales, you sometimes offer a prize, such as an evening on the town or tickets to a sporting event, to the person who sells the most during the month.

In this situation, the prizes you give are actually payments for the winners' selling efforts. You can deduct the cost of the prizes as ordinary and necessary business expenses. The direct sellers who receive your incentive prizes must report them as income at their fair market value. For more information, see Other Income, earlier.

Situation 3.   You sell cosmetics door-to-door. To spur sales, you often give away small samples.

In this situation, you can deduct the cost of the samples. If you purchase samples separately from the products you sell, you can deduct their costs as an ordinary and necessary business expense.

Do not deduct the cost of the same item twice. If the item was included in inventory, you cannot later deduct it as a business expense. The item will already be part of the cost of goods sold.

Gift limit.   You cannot deduct more than $25 for business gifts you give directly or indirectly to any one person during the year (see the exceptions discussed later). Personal gifts are not deductible.

Figuring the limit.   A gift to the spouse (or family member) of a customer is generally considered an indirect gift to the customer. However, if you have bona fide independent business connections with the spouse (or family member) and the gift is not intended for the customer's eventual use, this rule does not apply.

If you and your spouse both give gifts, you are treated as one taxpayer for the $25 limit. It does not matter whether you have separate businesses or independent connections with the recipient.

Incidental cost.   Costs that do not add substantial value to a gift, such as engraving on jewelry, packaging, insuring, and mailing, are generally not included in determining the cost of a gift for purposes of the $25 limit. For example, the cost of gift wrapping is considered an incidental cost. However, the purchase of an ornamental basket for packaging fruit is not considered an incidental cost if the basket's value is substantial in relation to the value of the fruit.

Exceptions.   The following items are not included in the $25 limit for business gifts.

• Items that cost $4 or less, on which your business name is clearly and permanently imprinted, and which are part of a number of identical items you widely distribute. This includes such items as pens, desk sets, and plastic bags and cases.
• Signs, display racks, or other promotional material to be used on the business premises of the recipient.

Gift or entertainment.   Any item that might be considered either a gift or entertainment will generally be considered entertainment and not subject to the $25 limit. However, if you give a customer packaged food or beverages to be used later, they are gifts.

If you provide business associates with tickets to a theater performance or a sporting event and you do not accompany them, you may treat the tickets as either a gift or entertainment, whichever is to your advantage. However, if you go to the event with them, you must treat the cost of the tickets as an entertainment expense.

Not-for-Profit Limit

If you do not carry on your direct-selling activity to make a profit, there is a limit on the deductions you can take. If the not-for-profit limits apply, you cannot use a loss from direct selling to offset any other income.

This limit applies, for example, if you go into direct selling primarily for the business deductions you can take. It also applies if you become a direct seller only so you and your friends can buy products at reduced rates.

If the not-for-profit limit applies, you can take the deductions allowed only if you itemize them on Schedule A (Form 1040). See Limit on Deductions and Losses under Not-for-Profit Activities in chapter 1 of Publication 535 for information on how to figure your allowable deductions. Do not use a business tax return, such as Schedule C (Form 1040).

Not for profit.   In deciding whether your direct selling is carried on for profit, take into account all facts about the activity. No one factor alone is decisive. The following are factors to consider.

• Whether you carry on your direct selling in a businesslike manner and maintain complete and accurate books and records.
• Whether the time and effort you put into direct selling indicates you intend to make it profitable.
• Whether you are depending on income from direct selling for your livelihood.
• Whether your losses are due to circumstances beyond your control (or are normal in the start-up phase of direct selling).
• Whether you change your methods of operation in an attempt to improve profitability.
• Whether you, or your advisors, have the knowledge needed to carry on direct selling as a successful business.
• Whether you were successful in making a profit in similar activities in the past.
• Whether your direct selling makes a profit in some years, and how much profit it makes.
• Whether you can expect to make a future profit from the appreciation of the assets used in your direct-selling business.

If the IRS inquires about your tax return, you may be asked to provide proof that your direct selling activity is carried on for profit. However, your direct selling is presumed to be carried on for profit if it produced a profit in at least 3 of the last 5 tax years, including the current year, unless the IRS establishes otherwise. If you are starting a business and do not have 3 years showing a profit, you may want to elect to have the presumption made after you have the 5 years of experience allowed by the test. For more information on postponing any determination that your direct selling is not carried on for profit, see Using the presumption later under Not-for-Profit Activities in chapter 1 of Publication 535.

Recordkeeping

You must keep records to correctly figure your taxes. Your records must be permanent, accurate, complete, and clearly establish your income, deductions, and credits. The law does not require you to keep records in any particular way. But if you have more than one business, you should keep a complete and separate set of books and records for each business.

Publication 583 provides information about setting up a recordkeeping system, the types of books and records included in a typical system for a small business, and sample records.

Publication 463 provides information on the records to keep if you use your car in your business.

The following are suggestions for keeping adequate business records.

• Keep a business bank account. Deposit all business receipts in a separate bank account. Make all payments by check, if possible. Then business income and business expenses will be well documented.
• Make a record. Record all your business transactions in separate account books and keep a monthly summary of your business income and expenses.
• Keep your records. You must keep your business books and records available at all times for inspection by the IRS. You must keep the records as long as they may be needed in the administration of any Internal Revenue law. You should also keep copies of your tax returns to help prepare future returns or file claims for refunds.
• Support your entries. File cancelled checks, paid bills, duplicate deposit slips, and other items that support entries in your books and on your tax return in an orderly manner and store them in a safe place. For instance, organize them by year and type of expense. If you cannot provide a cancelled check to prove payment of an expense item, you may be able to prove it with certain financial account statements prepared by financial institutions. These include account statements prepared for the financial institutions by a third party. These account statements must be highly legible. The following table lists acceptable account statements.

IF payment is by...	THEN the statement must show the...
check	check number. amount. payee's name. date the check amount was posted to the account by the financial institution.
electronic funds transfer	amount transferred. payee's name. date the transfer was posted to the account by the financial institution.
credit card	amount charged. payee's name. transaction date.

Proof of payment alone does not establish that you are entitled to a tax deduction. You should also keep other documents as discussed in Proving Your Deductions, next.

Proving Your Deductions

The IRS may ask you to prove your deductions for business expenses.

Travel Expenses

For travel expenses, you must be able to prove the following items.

• Each separate amount you spent for travel away from home, such as the cost of your transportation or lodging. A receipt, bill, or other documentary evidence generally is required for all lodging expenses. You can total the daily cost of your breakfast, lunch, dinner, and other incidental travel costs if they are listed in reasonable categories, such as meals, gas and oil, and taxi fares.
• The dates you left and returned home for each trip, and the number of days spent on business while traveling away from home.
• The destination or area of your travel, described by the name of the city or town.
• The business reasons for your travel or the business benefit you gained or expected to gain from it.

Entertainment Expenses

For entertainment expenses, including expenses for entertainment-related meals, you must be able to prove the following.

1. The amount of each separate entertainment expense. You can total incidental expenses, such as taxi fares and telephone calls, on a daily basis.
2. The date the entertainment took place.
3. The name and address or location of the place of entertainment. Include the type of entertainment, such as dinner or the theater, if the information is not clear from the name or designation of the place.
4. The occupation or other information about the persons for whom you are claiming an entertainment expense. Include their names, titles, or other information sufficient to establish their business relationship to you.
5. The business reason for the entertainment or the business benefit you gained or expected to gain from it and the nature of any business discussion or activity that took place.
6. The presence of you or your employee if the entertainment was a business meal given for a client.

Business discussion.   If the entertainment took place before or after a substantial and bona fide business discussion, in addition to the information in (1), (2), (3), (4), and (6) above, you must be able to prove the following.

• The date, place, and duration of the business discussion.
• The nature of the business discussion.
• The business reason for the entertainment or the business benefit you gained or expected to gain from entertaining.
• The identification of the persons who participated in both the business discussion and the entertainment activity.

Business relationship.   If you entertain a readily identifiable group of people, you do not have to record the name of each person. It is enough to designate the group. For example, if you entertain all the members of a garden club, an entry such as members of the Hillcrest Garden Club is enough.

Gift Expenses

For gift expenses, you must be able to prove the following.

• The cost of the gift.
• The date you gave the gift.
• A description of the gift.
• Your reason for giving the gift or any business benefit you gained (or expected to gain) from giving it.
• The occupation or other information about the person receiving the gift, including name, title, or other information establishing a business relationship to you.

The name of each recipient of a business gift does not always have to be recorded. A general listing will be enough if it is evident that you are not trying to avoid the $25 annual limit on the deduction for gifts to any one person. For example, if you buy a large number of tickets to local high school basketball games and give one or two tickets to each of many customers, it is usually enough to record a general description of the recipients.

Records

You should keep proof of travel, meal, entertainment, and gift expenses in an account book, diary, statement of expense, or similar record. You should also keep adequate documentary evidence to support each element of an expense.

You do not have to record information shown on a receipt if your records and receipts complement each other in an orderly manner.

Keep your records up to date. Record your expenses in your account book at or near the time of the expense. Entries made later, when you may not remember them accurately, do not have as much value as entries made at or near the time of the expense.

Separating expenses.   Usually, each separate payment you make must be recorded as a separate expense. For example, if you entertain someone at dinner and then go to the theater, the dinner expense and the cost of the theater tickets are separate expenses. You must record them separately in your records.

Expenses of a similar nature occurring during the course of a single event will be considered a single expense. For example, if during entertainment at a cocktail lounge you pay separately for each serving of refreshments, treat the total expense for the refreshments as a single expense.

Some items can be totaled in categories. You can make one daily entry for such categories as taxi fares, telephone calls away from home, gas and oil, and other incidental travel costs. Meals should be a separate category. Include tips for meal-related services with the costs of the meals.

Documentary evidence.   A receipt or bill is often the best evidence to prove the amount of an expense. Documentary evidence is needed for all your lodging expenses unless, under an accountable plan, your employer pays you a per diem reimbursement of no more than the government rate in effect at that time and in that area. It is also generally needed for any other expense of $75 or more.

Documentary evidence will ordinarily be considered adequate if it shows the amount, date, place, and essential character of the expense. For example, a hotel receipt is enough to support expenses for business travel if it has the name and location of the hotel, the dates you stayed there, and separate amounts for charges such as lodging, meals, and telephone calls. A restaurant receipt is enough to prove an expense for a business meal if it has the name and location of the restaurant, the number of people served, and the date and amount of the expense. If a charge is made for items other than meals and beverages, the receipt must show that this is the case.

Canceled check.   A canceled check, together with a bill from the payee, usually establishes the cost. However, a canceled check by itself does not prove a business expense without other evidence to show a business purpose.

Incomplete records.   If you do not have adequate records to prove an element of an expense, you must prove the element by providing both of the following.

• Your own statement, whether written or oral, containing specific information about the element.
• Other supporting evidence sufficient to establish the element.

Additional proof.   You may be required to provide additional information to the IRS to clarify or establish the accuracy or reliability of the information in your records, statements, testimony, or documentary evidence.

Sample
Filled-In Forms

This section will familiarize you with Schedule C (Form 1040), used to report business income or loss, and Schedule SE (Form 1040), used to figure self-employment tax. The line numbers in bold type follow the line numbers on the form being discussed.

Schedule C

If you are the sole owner of an unincorporated trade or business, report business income and expenses on Schedule C (Form 1040) or Schedule C-EZ (Form 1040). If you own more than one business, or if you and your spouse have separate businesses, file a separate Schedule C or Schedule C-EZ for each business.

Samples of Schedule C and Schedule SE for Kathleen Woods are illustrated on the following pages. (Amounts have been rounded to the nearest dollar.)

Kathleen Woods is a secretary for a small firm. She reports her salary of $25,000 on line 7 of Form 1040.

Kathleen is also a direct seller of household cleaning products manufactured and distributed by Spotless, Inc. She reports the income and expenses of her selling business on Schedule C because she is self-employed.

Kathleen uses the cash method of accounting and files her return on a calendar-year basis. She has no employees and does not keep an inventory of the products she sells. Any products ordered for personal use are not shown in purchases, sales, cost of goods sold, or inventory.

Kathleen's customers select the products they want from a catalog listing retail prices for each item. She places an order with Spotless every 10 days, at which time she also pays for her prior order. She receives the items ordered with an invoice payable within 10 days or, if sooner, with the next order. When she delivers the merchandise, she collects the retail (catalog) price for each item. She can get full credit for any items returned to Spotless within 10 days.

Kathleen's cost for each item is 65% of the retail price. During 2002, she had total retail sales of $14,600. She paid Spotless $9,490 for the merchandise she received in 2002. She also received an award of $200 in January for having over $20,000 in total sales in 2001.

Lines 1-3.   Kathleen reports $14,600 as her gross sales on line 1. On line 2, she would enter any refunds she had to give on merchandise, as well as adjustments made to customers' purchases. Since she has no entry on line 2, she enters $14,600 on line 3.

Line 4.   Kathleen uses Part III to figure her cost of goods sold for the year. She has no inventory at the beginning or end of the year. Therefore, she has no entry on line 35 or line 41 of Part III. She purchased $10,000 worth of household products during 2002 for $9,490. (She received trade discounts of $510.) She enters her net cost of $9,490 ($10,000 - $510) on line 36. She also enters this amount on lines 40 and 42 of Part III and on line 4 of Part I.

Line 5.   Gross profit, $5,110, is the difference between Kathleen's net receipts of $14,600 on line 3 and the cost of goods sold of $9,490 on line 4.

Line 6.   Kathleen reports the $200 received as a bonus on line 6. She does not include on Schedule C any income not related to her direct-selling business, such as income from investments or her salary. She reports this income on other lines of Form 1040.

Line 7.   Kathleen's gross income from direct selling is $5,310, the sum of her gross profit of $5,110 on line 5 and the bonus of $200 on line 6.

Line 8.   Kathleen gave her customers samples that cost $48. This amount was not included in the cost of goods sold on line 4.

Line 10.   Kathleen's business mileage was 2,100 miles, and her total 2002 mileage was 6,000 miles. She used her car 35% for business. She uses the standard mileage rate to figure the deduction of $767 (2100 × .365).

Kathleen must also complete Part IV of Schedule C.

Line 16b.   $280 is 35% of the total interest of $800 paid during the year on Kathleen's car loan.

Line 18.   Kathleen spent $260 for various office supplies and postage for her direct-selling business.

Line 22.   Kathleen paid $392 in 2002 for order blanks, bags, and miscellaneous selling supplies.

Line 23.   $168 is 35% of the personal property tax of $480 Kathleen paid on her car in 2002.

Line 24.   Kathleen attended two direct-selling seminars during 2002. Her travel expenses, including lodging, were $515, which she entered on line 24a. Her meals and entertainment, subject to the 50% limit, were $200 and were entered on line 24b. The nondeductible amount of $100 is shown on line 24c and the net deduction of $100 is shown on line 24d.

Line 25.   Kathleen uses her second telephone 100% for business purposes. She paid $264 for local service on her second phone and $62 for long-distance calls. She enters the total of $326 on this line. She has no deduction for other utilities because she does not use any part of her home exclusively for business.

Line 27.   This line is for other direct-selling expenses not listed separately on the schedule. These expenses are listed in Part V on page 2. Kathleen paid $35 to her bank for check printing and account charges for her separate business bank account. She paid membership dues of $30 to a local business association and $38 for a 1-year subscription to a retail sales magazine. She enters these expenses, along with the $199 she paid for catalogs, in Part V. She totals the expenses, $302, on line 48 and enters the total on line 27.

Line 28.   Kathleen adds all her business deductions listed on lines 8 through 27 and enters the total of $3,158 on this line.

Line 29.   Kathleen subtracts her total deductions on line 28 from her Schedule C gross income on line 7. Because her gross business income is greater than her total deductions, she has a tentative profit of $2,152.

Line 30.   Kathleen did not use any part of her home for business, so she does not make an entry here.

Line 31.   Kathleen has a net profit of $2,152 (line 29 - line 30). She enters her net profit here, on line 12 of Form 1040, and on line 2, Section A of Schedule SE (Form 1040).

Line 32.   Kathleen does not have a loss, so she skips this line. If she had a loss and was not at risk for all her investment in the business, she would have to attach Form 6198. See the Schedule C instructions for the meaning of at risk.

Short Schedule SE

Kathleen uses Short Schedule SE (Form 1040), because her net earnings from self-employment are more than $400 and the total of her net earnings plus her wages subject to social security and Medicare taxes (FICA) are not more than $84,900.

Line 2.   Kathleen enters $2,152, the amount from line 31 of Schedule C (Form 1040).

Line 3.   Kathleen enters the amount from line 2, $2,152.

Line 4.   Kathleen multiplies her net profit by .9235 and enters the result, $1,987.

Line 5.   Kathleen multiplies $1,987 (line 4) by .153 and enters $304 as her self-employment tax. She also enters this amount on line 56 of Form 1040.

Line 6.   Kathleen enters one-half of the amount from line 5. She also enters this amount on line 29 of Form 1040 as an adjustment to income.

schedule c (form 1040), page 1, for kathleen woods

schedule c (form 1040), page 2, for kathleen woods

schedule se (form 1040), page 1, for kathleen woods

How To Get Tax Help

You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get more information from the IRS in several ways. By selecting the method that is best for you, you will have quick and easy access to tax help.

Contacting your Taxpayer Advocate.   If you have attempted to deal with an IRS problem unsuccessfully, you should contact your Taxpayer Advocate.

The Taxpayer Advocate represents your interests and concerns within the IRS by protecting your rights and resolving problems that have not been fixed through normal channels. While Taxpayer Advocates cannot change the tax law or make a technical tax decision, they can clear up problems that resulted from previous contacts and ensure that your case is given a complete and impartial review.

To contact your Taxpayer Advocate:

• Call the Taxpayer Advocate at
  1-877-777-4778.
• Call, write, or fax the Taxpayer Advocate office in your area.
• Call 1-800-829-4059 if you are a
  TTY/TDD user.

For more information, see Publication 1546, The Taxpayer Advocate Service of the IRS.

Free tax services.   To find out what services are available, get Publication 910, Guide to Free Tax Services. It contains a list of free tax publications and an index of tax topics. It also describes other free tax information services, including tax education and assistance programs and a list of TeleTax topics.

Personal computer. With your personal computer and modem, you can access the IRS on the Internet at www.irs.gov. While visiting our web site, you can:

• See answers to frequently asked tax questions or request help by e-mail.
• Download forms and publications or search for forms and publications by topic or keyword.
• Order IRS products on-line.
• View forms that may be filled in electronically, print the completed form, and then save the form for recordkeeping.
• View Internal Revenue Bulletins published in the last few years.
• Search regulations and the Internal Revenue Code.
• Receive our electronic newsletters on hot tax issues and news.
• Learn about the benefits of filing electronically (IRS e-file).
• Get information on starting and operating a small business.

You can also reach us with your computer using File Transfer Protocol at ftp.irs.gov.

TaxFax Service. Using the phone attached to your fax machine, you can receive forms and instructions by calling 703-368-9694. Follow the directions from the prompts. When you order forms, enter the catalog number for the form you need. The items you request will be faxed to you.

For help with transmission problems, call the FedWorld Help Desk at 703-487-4608.

Phone. Many services are available by phone.
 

• Ordering forms, instructions, and publications. Call 1-800-829-3676 to order current and prior year forms, instructions, and publications.
• Asking tax questions. Call the IRS with your tax questions at 1-800-829-1040.
• Solving problems. Take advantage of Everyday Tax Solutions service by calling your local IRS office to set up an in-person appointment at your convenience. Check your local directory assistance or www.irs.gov for the numbers.
• TTY/TDD equipment. If you have access to TTY/TDD equipment, call 1-800-829- 4059 to ask tax questions or to order forms and publications.
• TeleTax topics. Call 1-800-829-4477 to listen to pre-recorded messages covering various tax topics.

Evaluating the quality of our telephone services. To ensure that IRS representatives give accurate, courteous, and professional answers, we use several methods to evaluate the quality of our telephone services. One method is for a second IRS representative to sometimes listen in on or record telephone calls. Another is to ask some callers to complete a short survey at the end of the call. Walk-in. Many products and services are available on a walk-in basis.
 

• Products. You can walk in to many post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. Some IRS offices, libraries, grocery stores, copy centers, city and county governments, credit unions, and office supply stores have an extensive collection of products available to print from a CD-ROM or photocopy from reproducible proofs. Also, some IRS offices and libraries have the Internal Revenue Code, regulations, Internal Revenue Bulletins, and Cumulative Bulletins available for research purposes.
• Services. You can walk in to your local IRS office to ask tax questions or get help with a tax problem. Now you can set up an appointment by calling your local IRS office number and, at the prompt, leaving a message requesting Everyday Tax Solutions help. A representative will call you back within 2 business days to schedule an in-person appointment at your convenience.

Mail. You can send your order for forms, instructions, and publications to the Distribution Center nearest to you and receive a response within 10 workdays after your request is received. Find the address that applies to your part of the country.

• Western part of U.S.:
  Western Area Distribution Center
  Rancho Cordova, CA 95743-0001
• Central part of U.S.:
  Central Area Distribution Center
  P.O. Box 8903
  Bloomington, IL 61702-8903
• Eastern part of U.S. and foreign addresses:
  Eastern Area Distribution Center
  P.O. Box 85074
  Richmond, VA 23261-5074

CD-ROM for tax products. You can order IRS Publication 1796, Federal Tax Products on CD-ROM, and obtain:

• Current tax forms, instructions, and publications.
• Prior-year tax forms and instructions.
• Popular tax forms that may be filled in electronically, printed out for submission, and saved for recordkeeping.
• Internal Revenue Bulletins.

The CD-ROM can be purchased from National Technical Information Service (NTIS) by calling 1-877-233-6767 or on the Internet at http://www.irs.gov/cdorders. The first release is available in early January and the final release is available in late February.

CD-ROM for small businesses. IRS Publication 3207, Small Business Resource Guide, is a must for every small business owner or any taxpayer about to start a business. This handy, interactive CD contains all the business tax forms, instructions and publications needed to successfully manage a business. In addition, the CD provides an abundance of other helpful information, such as how to prepare a business plan, finding financing for your business, and much more. The design of the CD makes finding information easy and quick and incorporates file formats and browsers that can be run on virtually any desktop or laptop computer.

It is available in March. You can get a free copy by calling 1-800-829-3676 or by visiting the website at www.irs.gov/smallbiz.

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