Saturday, February 01, 2003
The bulk of the 30 page Summary Opinion in the case of WILLIAM HERBERT WHITEHURST, III AND CARLA CHERLENE WHITEHURST, involves the Whitehursts� attempt to claim business losses for Carla�s expenses incurred while traveling to and participating in various bowling tournaments. IRS of course denied them, claiming the bowling expenses were hobby losses. Tax Court found for the Whitehursts. Points I found interesting:
* Tax Court discussed and considered all of the factors described in the regs, but what really seemed most important in convincing them that there was an actual and honest profit motive was the way she altered her practices in the face of lack of profits, first switching from national to regional tournaments, then ending her involvement in tournaments altogether. They seemed to believe that had the motive been essentially recreational, she would have continued the tournaments despite the lack of profits.
* The fact that she did not keep separate books or bank accounts was not held against her because she did keep records and receipts.
* The fact that she consulted a tax preparer for advice on what records to keep to deduct possible losses was actually used by the Tax Court in her favor, as one of several expert consultations to help her learn how to properly run a business.
* The relatively high total income of the Whitehursts apart from the losses attributed to the bowling (an activity with a significant element of pleasure) was the only factor used against them, as a side activity of an otherwise wealthy couple looks like a hobby.
In other issues:
> Tax Court disallowed a few expenses that the Whitehursts did not provided documentation for, but the bulk of their claimed expenses were allowed.
> Undocumented charitable expenses were disallowed.
> Telephone, equipment and supply expenses were allowed for Carla in her employment unrelated to bowling. What I found interesting here was that to deduct expenses for work done at home, the use of the home for work must be for the employers convenience, but here the use of the home was Carla�s idea, and she had to argue with her employers to let her do so. Nevertheless, she was allowed to use her home for work because she convinced her employers that it would in fact be more advantageous (convenient) for them, and they wrote a note to that effect.
> William also claimed equipment and supply deductions for employment-related expenses, but provided no writings or testimony to support them. Tax Court disallowed.