Tax Court: Get a room! If you spend a lot of time on the road, you may have wondered whether it might make sense to buy a Winnebago instead of hopping between motels. The Tax Court yesterday weighed in on the side of motels.
A California insurance man with an RV found a market for his wares among his fellow tin-can nomads, as the Judge Wherry explains:
Starting in 2004, petitioners began attending RV rallies not just for pleasure but also for business purposes. At or around the same time, they purchased a 2004 Winnebago RV. We reject petitioners’ contentions that they attended RV rallies solely for business purposes from 2004 but instead find that they had mixed purposes. Petitioners would gather sales leads at every rally. To that end, petitioners had a banner that they attached to their RV advertising Dell Jackson Insurance. Petitioners would set up an information table outside of their RV or outside the clubhouse, if the site had one. If they set up a table by a clubhouse, petitioners moved the banner from the RV to the table. Otherwise, the sign remained on the RV from the time they arrived until the time they left. Petitioners would invite potential customers to come to their RV, and they would sit either outside or inside the RV and discuss the prospective client’s insurance needs. It would often take months, if not years, for a relationship with a potential customer, which could begin with a lead, to develop into an actual sale.
Naturally the salesman deducted expenses of his RV in preparing the Schedule C for his insurance business. The IRS limited his deductions using Section 280A, which limits business deductions for personal residences. The Court said that the RV was a house, as far as the tax law is concerned (citations and footnotes omitted, emphasis added):
Generally, “a taxpayer uses the dwelling unit during the taxable year as a residence if he uses such unit (or portion thereof) for personal purposes for a number of days which exceeds the greater of — (A) 14 days, or (B) 10 percent of the number of days during such year for which such unit is rented at a fair rental.” “Dwelling unit” is also a defined term and “includes a house, apartment, condominium, mobile home, boat, or similar property”. Sec. 280A(f)(1)(A). This Court has previously held that a motor home qualifies as a dwelling unit within the meaning of section 280A(f)(1)(A). Although we use the more modern term throughout this opinion, an RV and a motor home are one and the same thing. Petitioners and counsel used the two terms interchangeably at trial. Accordingly, petitioners’ RV is a dwelling unit for purposes of section 280A.
The Tax Court said that while the expenses were otherwise legitimate, the Section 280A disallowance of business expenses when a residence, or part of one, isn’t used “exclusively” for business overrides the deductions:
This result may seem harsh, but it is the operation of the statute, which reflects Congress’ desire to prevent taxpayers from deducting personal expenses as business expenses.
While the court admitted the result was harsh to begin with, that didn’t stop it from piling on, adding over $8,000 in “accuracy-related” penalties to the $42,000 in additional taxes assessed by the IRS — another example of the unfortunate tendency of the IRS — with the blessing of the Tax Court — to penalize everything, even when the taxpayer used an apparently reputable preparer.
The moral: RVs may be great for retirement travel, but they aren’t the best thing for business deductions. If they had rented hotel rooms, the deductions apparently would have been just fine.
So the IRS Commissioner is just fine with cronyism in tax administration. John Koskinen Indicates IRS Revolving Door Is A Feature Not A Bug (Peter Reilly). It will be hard to unseat Doug Shulman as the Worst Commissioner Ever, but John Koskinen is giving it the old college try.
Jack Townsend, It’s So Easy to Say No — The IRS Often Gets to No for Streamlined Transition Relief in OVDP. “The bottom-line is that the IRS is denying the nonwillful certification in far more cases than practitioners thought would be the case. And, the process of denial is a bit of a black box.”
Leslie Book, Summary Opinions for 7/25/14 (Procedurally Taxing). A roundup of recent tax procedure happenings.
Federal prosecutors first filed charges against ATR in 2010. In August 2012, a federal court entered a partial summary judgment in favor of the FTC, finding that the defendants falsely claimed they already had significantly reduced the tax debts of thousands of people and falsely told individual consumers they qualified for tax relief programs that would significantly reduce their tax debts.
The court issued a $103.3 million judgment against the company.
Outfits like ATR, J.K. Harris, TaxMasters and Roni Deutsch pulled in lots of revenue from taxpayers desperate to believe in the Tax Fairy. There is no tax fairy.
It’s Friday, the Iowa State Fair is underway, and Robert D. Flach is buzzing! So it’s a good day three ways.
TaxGrrrl, normally the soul of restraint, lets loose on the inversion diversion in Obama Joins Blame Game As Companies Flee U.S. For Lower Tax Rates:
But to point fingers at lawyers and accountants as if they are holding all the cards is plain wrong. If we want to talk about responsibility, let’s talk about responsibility.
So Presidemt Obama (a Harvard Law grad) and members of Congress (about 40% have law degrees), you can be angry about corporate inversions. You can publicly denounce companies that participate. You can try and put an end to it through changing the existing legislation. But those in Washington have no business blaming the lawyers and the accountants. We didn’t write the rules, you did.
The tax code is the instruction manual for taxpayers, and their lawyers and accountants, for tax compliance. And now the politicians don’t like what happens when we read and follow instructions.
Andrew Lundeen, To Stop Inversions, Fix the Tax Code (Tax Policy Blog). “But the lack of competitiveness created by the corporate tax isn’t the only issue: at its core, the corporate tax is inherently not neutral. It is highly distortive, opaque, and economically damaging tax.”
Christopher Bergin, Beware the Individual Income Tax Inversion (Tax Analysts Blog) “The truth is that our tax system is in trouble – all of it: the corporate side, the administration side, and the individual side. And that means the country is in trouble.”
Kelly Davis, Tax Policy and the Race for the Governor’s Mansion: Illinois Edition (Tax Justice Bl0g). Political wrangling in a doomed state.
TaxProf, The IRS Scandal, Day 456. The scandal has been Voxplained. Keep calm, all is well.
Art appreciation tip: “Like the folks who believe that the limits on maritime jurisdiction, explained by a talking salamander, holds the key to beating a federal criminal charge, the full tapestry of wacko tax fraud theories is a lovely thing to behold….” (Matt Kaiser, Above The Law). He covers a “sovereign citizen” from Omaha who learned that filing a phony $19 million lien on a judge is perhaps not the optimal way to handle a tax controversy.
Adrienne Gonzalez, California Might Ditch the Attest Requirement for CPA Licensure. I’m sure I would have been a better person if I had to waste two years observing inventories and otherwise bothering real auditors.
Tags: TaxProf, tax court, Kay Bell, Robert D Flach, Christopher Bergin, TaxGrrrl, Section 280A, Jack Townsend, Judge Wherry, Jason Dinesen, tax fairy, Andrew Lundeen, Leslie Book, John Koskinen, Adrienne Gonzalez, Kelly Davis, Matt Kaiser, Sulman, Worst Commissioner