Borderline Deductions

[ChEAr$]

Posts 7, 8, 9 & 10 are just the reason why I posed this question. As tax preparers we cannot come to a consensus on what is deductible. Should WE be the one deciding what meets the definition or not? If we explain the rules to our clients, document our explanation and then let the client make their own decision, have we not done our duty? Or is "interpreting" the law now are job too??

it is our duty to both explain and follow the tax law.

[Black Bart]

Tux duck

I don't think a tuxedo is spoken in the same breath with conventional clothing, dress clothing, casual clothing, outdoor clothing, etc.

I would be somewhat acceptable to deducting tuxedo costs.

I agree with this in theory, but considering today's IRS "no quarter" policy re tax preparers, I'm thinkin' I wouldn't take the chance.

From TTB 4-25: "The cost of uniforms and work clothes are deductible if (1) Taxpayer must wear them as a condition of employment (2) The clothes are not suitable for everyday wear."

We're okay on #1 (he's got to wear the tux) but #2 is the catch -- look at this TTB example: "The union requires Gregg to wear a white cap, white shirt, white bib overalls, and standard tennis shoes as a painter. Because these clothes could also be suitable for everyday wear, they are not deductible. It is irrelevant that they get ruined by paint after their first use on the job."

IRS has a point about the cap, shirt, and tennis shoes, but the wearing of paint-splattered white overalls as fine casual wear is a bit much. Still, in view of that position, we can assume they'd feel the same about the ridiculous off-the-job wearing of a tux.

If so, then the "realistic possibility" standard would not be met and the auditor would probably throw out the tux duck (and maybe fine us $1,000 to set an example).

[powerage]

wanted to deduct suites

3 years ago I had someone walk in asking a few questions, and one was about deducting the cost of his business suites. I explained the rules to him. He then made an appointment for a few days later that he never intended to keep. There are hundreds of tax places in my area, I'm sure he found someone who would deduct them.

What I get a lot are people who where told flat out wrong information from a friend or family member when it comes to this topic...and taxes in general.

[erchess]

Let's be realistic here

It's no problem to demonstrate that the worker is contractually bound to wear certain clothing on the job. Most workers can meet that test. It's also clear that if a given garment provides protection from a real job hazard or bears the name of the worker, the union or the employer then it meets the second test. If it doesn't provide protection or bear a relevant name, then we are left with only the ultimately subjective judgment whether it is suitable for street wear. We do have to remember that in making that judgment we are not to take into account things that will happen to the garment on the job but rather must consider its appearance when new and unworn.

If I go down that road at all I am going to disclose to the IRS what we are doing and disclose in writing to the client that I think it is MLTN the return will be audited and that if audited it is almost sure to be lost in the initial audit and MLTN this will be affirmed on appeals so taking the deduction makes sense only if the deduction is worth going to Tax Court over. If they still wanted to claim the clothes I would insist that they take clear pictures of every single garment front and back, keeping a set and giving me a set for my safety deposit box.

[JohnH]

So does this mean that if I dress up in a green plastic raincoat & hat with pointy spikes and stand on the corner waving at passersby to try and lure them in my office, I WON"T be able to deduct the cost? Dang, I think I'll just ditch the whole concept! Probably was a stupid idea anyhow.

[Black Bart]

It's gettin'

So does this mean that if I dress up in a green plastic raincoat & hat with pointy spikes and stand on the corner waving at passersby to try and lure them in my office, I WON"T be able to deduct the cost? Dang, I think I'll just ditch the whole concept! Probably was a stupid idea anyhow.

almost impossible to get a serious argument outta you anymore. One more smart aleck observation and I'll consider breakin' diplomatic relations and askin' my fellow Arkansan thomtax to act on my behalf as a proxy to handle all further communication between us.

Now! Would you or would you not deduct that tux?

P.S. This: ..."dress up in a green plastic raincoat & hat with pointy spikes..." would probably be suitable for everyday wear in Los Angeles but not here or in NC.

[Black Bart]

Getting real.

(Let's be realistic here)...If it doesn't provide protection or bear a relevant name, then we are left with only the ultimately subjective judgment whether it is suitable for street wear...

If I go down that road at all I am going to disclose to the IRS what we are doing and disclose in writing to the client that I think it is MLTN the return will be audited and that if audited it is almost sure to be lost in the initial audit and MLTN this will be affirmed on appeals so taking the deduction makes sense only if the deduction is worth going to Tax Court over. If they still wanted to claim the clothes I would insist that they take clear pictures of every single garment front and back, keeping a set and giving me a set for my safety deposit box.

First, I'm not disclosing anything -- to me it's either deduct it straight-up or don't do it. I think the audit odds on this one item are likely very low but if he loses it, he loses it -- I'm not going to appeals/Tax Court over such trifles.

If you (1) give the client that written scare-speech (2) demand pictures, two sets, front and back, each piece, then -- realistically speaking -- the client's heading for the door. Nobody's going to do that.

[JohnH]

What'as the point of a serious argument? That just means I've got to defend what I say. And how can we break off diplomatic relations when I'm anything but diplomatic to begin with? (Or so I've ben told)

But if you must know, I'm not deducting the tux if its a standard, run-of-the-mill tux (whatever that might be). If it's some sort of special sequined, striped, flowered get up for a stage performance, then probably yes. But if he's just wearing it to upscale social events, he should be grateful that he makes enough money to travel in those lofty circles and stop trying to nickel & dime the tax system when it's clear the rest of us taxpayers can't deduct the bib overalls we wear to the office every day in order to fit in among our social peers.

Or to state it another way, when our tax code starts allowing our military to deduct their dress uniforms, I'll go along with deducting a tux. Otherwise, the only deduction for a tux would be the deduction for donating it to Goodwill (provided it's in good, usable condition).

One other thing - I remembered that the green hat with the pointy spikes can't be deducted for another reason. I saw a shredder wearing one a couple of years ago at a ski resort. I assume he'd just gotten off work standing on the street corner, took off his green raincoat, and decided the headgear would look cool at the slopes. And it did match his purple hair with the orange stripes. So there goes the "other than everyday wear" argument.

[equinecpa]

Or to state it another way, when our tax code starts allowing our military to deduct their dress uniforms, I'll go along with deducting a tux.

OOh...now that is a good retort...maybe my client will quit squawking if I use that one!

[New York Enrolled Agent]

It seems to me that some of what has been posted in this thread is not exactly correct. I think ChEAr$ comes close to the truth.

Circular 230, §10.34(a) - Standards for signing a tax return - is still "reserved" and is being worked on. OPR may soon give guidance. In the interim, §6694(a) - the preparer penalty for understating a taxpayer's tax liability - is the best source of guidance. That section does NOT say file a disclosure and you are off the hook. It says nothing about MLTN or about 2 out of 3 preparers saying it's ok or not. What it does say, is that the preparer can avoid the penalty if the preparer has a reasonable basis for taking a position on the return and discloses that position. If the preparer does not disclose a position the preparer must have substantial authority to avoid the §6694(a) penalty.

What's a reasonable basis? The answer is found in Reg §1.6662-3(b)(3) where reasonable basis is "defined". Not a clear-cut definition but it gives you something to hang your hat on.

There have been many cases on "clothing deductions". Look at Fisher 23 TC 218 (where a tuxedo & other formal clothing was found to be deductible), Loinaz, TC Memo 1975-17 or Popov, TC Memo 1998-374 for discussions on what is ordinary & necessary.

As an aside, at one time (way before I was born) the IRS took the position that uniforms of nurses, surgeons, baseball players and police uniforms were simply a substitute for regular clothing and not a deductible expense. Who says the IRS is not flexible?

[Black Bart]

Dear NYEA

s

It seems to me that some of what has been posted in this thread is not exactly correct. I think ChEAr$ comes close to the truth.

Circular 230, §10.34(a) - Standards for signing a tax return - is still "reserved" and is being worked on. OPR may soon give guidance. In the interim, §6694(a) - the preparer penalty for understating a taxpayer's tax liability - is the best source of guidance. That section does NOT say file a disclosure and you are off the hook. It says nothing about MLTN or about 2 out of 3 preparers saying it's ok or not. What it does say, is that the preparer can avoid the penalty if the preparer has a reasonable basis for taking a position on the return and discloses that position. If the preparer does not disclose a position the preparer must have substantial authority to avoid the §6694(a) penalty.

What's a reasonable basis? The answer is found in Reg §1.6662-3(b)(3) where reasonable basis is "defined". Not a clear-cut definition but it gives you something to hang your hat on.

There have been many cases on "clothing deductions". Look at Fisher 23 TC 218 (where a tuxedo & other formal clothing was found to be deductible), Loinaz, TC Memo 1975-17 or Popov, TC Memo 1998-374 for discussions on what is ordinary & necessary.

As an aside, at one time (way before I was born) the IRS took the position that uniforms of nurses, surgeons, baseball players and police uniforms were simply a substitute for regular clothing and not a deductible expense. Who says the IRS is not flexible?

Thanks much for your valuable insights and cites and I defer to your Bees-class judgment (all except for givin' credit to one of those Alabama boys -- you know how it goes to their heads when they receive praise). Do you think this tux case would likely fly or would you say it's a judgment call for each individual preparer)?

[ChEAr$]

s

Thanks much for your valuable insights and cites and I defer to your Bees-class judgment (all except for givin' credit to one of those Alabama boys -- you know how it goes to their heads when they receive praise). Do you think this tux case would likely fly or would you say it's a judgment call for each individual preparer)?

God will get you for that, Bart! (grin

[New York Enrolled Agent]

s

Thanks much for your valuable insights and cites and I defer to your Bees-class judgment (all except for givin' credit to one of those Alabama boys -- you know how it goes to their heads when they receive praise). Do you think this tux case would likely fly or would you say it's a judgment call for each individual preparer)?

Bart

My comments were intended to clarify a few posts which I did not believe to be fully accurate. These cases of "special" clothes do require a judgment call (there is no bright-line here) but I think the call can be made only after adequate research to see if the preparer has a reasonable basis or substantial authority. That's why I posted some cites for a start to research. Even the judges in these cases acknowledge the difficulty in determining what is deductible.

I can't give you an answer as to the clothes in this case from the original poster. Facts & circumstances always control, though without knowing the exact nature of these clothes, it does seem the Burlington clothes are probably off the table and not a deduction. The others - would need to know more detail ????

[Lion]

Performance clothing

I have a violinist who is required to wear a black formal gown when she performs in a symphony orchestra. She's bought only one in all the years I've been preparing her taxes (14?). When she's not performing, she teaches violin and is a single mom of a young boy; so I believe her when she says the gown comes out for symphony performances only. It was a small deduction compared to her new $6,000 bow! I did deduct the gown.

My husband conducts choruses and is required to wear a tuxedo for particular performances where the other conductors wear tuxedos. In our 16 years of marriage, I've never seen him wear a tuxedo for anything other than conducting his choruses. It was so important to his school that he dresses like the other conductors at performances that the parents got together and purchased his first tuxedo. Then we went on Atkins, and he lost so much weight that that tuxedo could not be altered anymore! He bought a new tuxedo, which I deducted on our return.

I have several actresses who keep asking me about deducting boots or audition outfits or hose or haircuts or other items that do NOT qualify per my research. But, when a client has formal wear for performances that I do not see reasonable people wearing on the streets of downtown Westport, CT, (except maybe on New Year's Eve!) then I do deduct it.

[JON]

Obviously there is not an

exact science, that is why it is an art. If you are audited I think an arguement that I do not wear it for personal use would fall on deaf ears. I think the regulation is more that it "COULD BE" "IS AVAILABLE". I also think there are some court cases concerning professional musicians. I have no problems deducting haircuts, fix-ups the day of perfomanences, but other days-not. Years ago there was a news anchor who tried to deduct everything saying they were all necessary because of his position he was expected to present himself in that manner-he lost.

Randal Roth, JD, tax seminar speaker years ago said accountants could deduct the cost of rolex watchs and suits - if neither left the office. I think he has softened his stance since then, but the point being does anything you "only" use at the job location not preclude personal use. My arguement with him was the could be and available issues that he agreed were there, but where is the science vs the art form.

That is why we make the BIG bucks.