Tanzi Court Case

[Snaggletooth]

The Tax Book update service had an article on the referenced Tanzi Court Case. TC Memo 2016-148 You may read it for yourself.

Essentially taxpayer was a college professor, and claimed that certain expenses such as internet, articles, books, CDs, DVDs, etc. were necessary business expenses to maintain his proficiency as a college professor and librarian. Tax Court found that these expenses were all personal.

Really? I deduct these things routinely for professional people where the subject matter of these materials are related to their trade or profession. If the internet is being used, I do not deduct 100% of the internet cost or related cellphone downloads, etc.

I can understand there is a personal element in the determination of the court for some of this, but does this mean TTB Web CD is not deductible? What about the TTB update service disallowed because it is available over the internet?

Any advice how we as preparers should proceed as we determine certain expenses to be "ordinary and necessary"? or have I missed the boat on this?

[Kram BergGold]

My Reading

The Taxpayer's claim was the items provided General Knowledge which made him a better teacher. Had he linked specific expenses to specific things connected to his teaching the result would have been different, I believe.

[kathyc2]

I can understand there is a personal element in the determination of the court for some of this, but does this mean TTB Web CD is not deductible? What about the TTB update service disallowed because it is available over the internet?

Any advice how we as preparers should proceed as we determine certain expenses to be "ordinary and necessary"? or have I missed the boat on this?

You can deduct the TTB, but not The Cat Owners Manual like they tried to do. They were saying "general knowledge" expenses were deductible as opposed to specific knowledge to do their jobs. No substantiation for percent of use of internet, phone, directTV (seriously?). Tried to claim 12K of depreciation for items they had no proof of purchasing. IRS did their job on this one. Wish they would crackdown more on returns like this.

On another note, I think a reasonable argument could be made for a preparer to deduct full amount for internet service as we are required to e-file. At least the full amount of the lowest price internet service available.

[Roland Slugg]

Snagg, did you read the court's actual, written decision? The T/Ps deducted 100% of their Direct TV service, 100% of their cell phone service, 100% of the cost of all the books they bought, depreciation on 100% of $12,000+ of other, undescribed assets purchased in prior years, and 100% of several other things that had no more than the remotest relationship to their jobs at the university.

Instead of deducting reasonably apportioned amounts or percentages of the various items, they were hogs and deducted 100% of everything, and the court had no difficulty in denying their ridiculous claims. 100% of them.

By the way, for those who may not know, this case resulted in a "Memo" decision. (T.C. Memo. 2016-148) A "memo" decision is one which creates no new concepts and overturns no established precedents. It's pretty much a decision that says all the issues have been ruled on before, in prior, similar cases, and this decision simply affirms concepts and decisions that have previously been decided.

I would like to add an opinion of my own: The T/Ps were not well-served by their tax preparer who went along with their foolish deductions (and to whom they paid a $1,000 fee).

[Burke]

No substantiation for percent of use of internet, phone, directTV (seriously?).

IRS did their job on this one. Wish they would crackdown more on returns like this.

On another note, I think a reasonable argument could be made for a preparer to deduct full amount for internet service as we are required to e-file. At least the full amount of the lowest price internet service available.

I have a friend who is a bond trader (out of his home) and he deducts the cost of Bloomberg channel which is part of DirectTV. How he substantiates and/or prorates this, I do not know. Lots of clients deduct the Internet expense same as phone, etc based on business-related usage. A tax preparer would use the Internet more than just for efiling; also software updates, tax research, stock quotes, to name a few. I would have no problem with TTB Web CD @ 100%.

[kathyc2]

I A tax preparer would use the Internet more than just for efiling; also software updates, tax research, stock quotes, to name a few.

Agreed. And in the case of a home office, for personal reasons also. My position is since it's required by a gov't agency it goes beyond the ordinary and necessary. I'm sure there are better examples, but the only one that readily comes to mind is a truck driver. CDL license also covers them for driving their car for personal reasons. Would anyone even think of pro-rating it? Or, also with a truck driver prorating the CDL physical because a regular physical would not be deductible?

[RitaB]

Just amazing

Snagg, did you read the court's actual, written decision? The T/Ps deducted 100% of their Direct TV service, 100% of their cell phone service, 100% of the cost of all the books they bought, depreciation on 100% of $12,000+ of other, undescribed assets purchased in prior years, and 100% of several other things that had no more than the remotest relationship to their jobs at the university.

Instead of deducting reasonably apportioned amounts or percentages of the various items, they were hogs and deducted 100% of everything, and the court had no difficulty in denying their ridiculous claims. 100% of them.

By the way, for those who may not know, this case resulted in a "Memo" decision. (T.C. Memo. 2016-148) A "memo" decision is one which creates no new concepts and overturns no established precedents. It's pretty much a decision that says all the issues have been ruled on before, in prior, similar cases, and this decision simply affirms concepts and decisions that have previously been decided.

I would like to add an opinion of my own: The T/Ps were not well-served by their tax preparer who went along with their foolish deductions (and to whom they paid a $1,000 fee).

I can't figure out why they didn't write off all their food because it added to their general health, which kept their incredible brains robust. Or hog feed, because yes, they were hogs. Agree with you completely, Roland.

https://www.ustaxcourt.gov/UstcInOp/OpinionViewer.aspx?ID=10885

[Snaggletooth]

Text of Court Case

OK folks. I read only the excerpt from TTB Update Service. The Tanzi case was available, but I didn't choose to read it and see the types of expenses they were trying to deduct.

Agree with all of you. And the IRS as well. FWIW I deduct my own internet costs as well as a liberal percentage for my customers who have a business use.

Thanks for the input...

[FEDUKE404]

"Pigs get fat and hogs get slaughtered."

This scenario reminds me of my days in a "store front operation" where we had to endure Amway and Mary Kay folks. Darn near everything they did in life was a "deduction."

As for the internet fees, I've never deducted 1¢ for such on my personal return. The amount of time I spend "e-filing" versus the annual amount of time I'm actually using the internet is minuscule. I guess I could figure out what percent of browsing time I use for reading IRS stuff, participating on TTB board, etc but it's just not worth the effort to me.

FE

[JohnH]

Ah yes, the Amway and Mary Kay returns. I have fond memories of those, especially the one who wanted to deduct cat food and vet bills because some businesses deduct those items for their guard dogs. I told them a "security cat" deduction wouldn't pass the laugh test in an audit. Don't know what their next preparer told them.

[RitaB]

Been thinking

Been thinking about the Tanzi's tax prep fee of $1,000 for some year(s), I assume prior to the year audited. I already don't like this tax professional and wonder where his head was in all this. I understand that the prior year(s) may have been more than a Sch A and two (ahem) colorful Forms 2016-EZ. I understand it, and I doubt it.

[Snaggletooth]

Nightmare Appointment

While we're on the subject of Avon & MaryKay, this reminds me of an appointment I have tomorrow.

Four (yes, four) new women, and involved in yet another multi-level marketing scheme. They have all been told they are going to get rich by building a downline. The reason they are all having an appointment at the same time [get ready for this]?

They all want to form a partnership and become prepared to do a partnership return 1065.

I hate to burst their bubble, but tomorrow they are going to get an education to rival the facts of life...

[JohnH]

Maybe they're going to offer you a small percentage ownership in the venture. All you have to do is handle all their tax work at no charge. And of course prepare the returns the "right way". Since they're going to get rich working part time, you may as well get rich with them...