He said that his patients often called him a psychiatrist, chauffer, physician, peace officer, or even a pheasant hunter.”
He is David Laudon, a chiropractor in Minnesota and
the subject of one of the more entertaining Tax Court opinions of the last
decade. Laudon, however, reached too far for too long, and he was about to
learn about snapback.
Back to the Court:
But not a ghostbuster. The Commissioner rhetorically asserted that some of Laudon’s trips might have made more sense if he was claiming to be a ghostbuster. Laudon then disclaimed any employment as a ghostbuster. In his reply brief the Commissioner conceded that Laudon was not ‘employed or under contract to perform work as a ghostbuster during the tax years at issue in this case.’”
Methinks Laudon missed the joke.
How did Laudon get to court?
Easy: he was audited for years 2007 through 2009.
His records were … colorful, humorous, inadequate.
Laudon did not keep records of his income in any decipherable form.”
The IRS did a reconstruction of his business income by
analyzing his bank accounts. The rule of thumb is straightforward: all deposits
are income unless one can prove otherwise. A common otherwise is when a
taxpayer transfers money between accounts.
Laudon contends that the Commissioner failed to classify certain deposits as nontaxable, including insurance payments for damage to several vehicles, one of which was involved in a ‘high speed police chase’ with a man ‘high on meth and cocaine.’”
There is something you do not see every day. The other
thing the Court did not see was “any evidence” that the deposits were what and
as Laudon described.
We therefore accept the Commissioner’s reconstruction of income.”
On to deductions.
He treats some of his patients in his home and claims to use roughly half of his house – the basement and half of the garage – for business.”
This could be a problem. Rember that an office in home
deduction requires exclusive business use of the space. He claimed a lot of
space, ratcheting the pressure on “exclusive.”
Like many chiropractic offices, Laudon’s has beds, tables, and a waiting area. But unlike most, his also comes equipped with a Wii, Xbox 360, big-screen TVs and, for a time, a working hair salon.”
Hair salon? What kind of chiropractic office is this?
I see that Laudon represented himself at Tax Court. I
would also guess that he represented himself during the audit. Why do I say that?
We particularly disbelieve his claim that the Xbox, Wii, big-screen TVs and other electronics in his basement were used exclusively for chiropractic purposes since this claim conflicts with his much more plausible admission to the IRS examiner during audit that his daughter and his girlfriend’s son would play these video games while he was on the phone.”
There is an example of why I almost never have a
client meet or speak directly with the IRS – I cannot control the exchange.
Laudon was deducting between 40,000 and 60,000 miles
per year for business purposes.
.. for example, driving to a ‘schizophrenic’ patient who was – on more than one occasion – ‘running scared of demons’ down a rural Minnesota highway .…”
That last part should be incorporated into a folk or country
song. I can almost hear the melody.
Laudon apparently had a penchant for adult beverages.
Laudon claimed to have driven hundreds of miles per day – sometimes without a valid license ….”
I’ll bite. What happened to his license?
Even his testimony about multiple entries in the logs where he wrote “DUI” was not credible: He claimed that these were not references to being stopped by the police while under the influence, or driving while his license was suspended .…”
Then what were they?
They “instead were his misspellings of a patient named: 'Dewey' - a supposed patient of his.'"
This is starting to read like a sit com script. I am
waiting for the reference to tiger blood.
But he had a mileage log, right? Did that count for
anything?
Laudon had a mileage log, but it fails to meet section 274(d)’s standards. The … entry, for example, describes his purpose as ‘travel to and from places.’”
Zen-like. Nice.
The Court also looked at other expenses, including
“Other Expenses” for the three years under audit.
Most of this amount - $22,665 – was a deduction for the value of Laudon’s labor, supplies and stolen goods ….”
Wait on it.
… related to the renovation of a home that Laudon neither lived nor worked in, or even owned.”
It fits. Well done, sir.
Laudon was getting clipped on almost every
deduction.
But wait.
You know the IRS wanted penalties.
Laudon asserts the defense that he reasonably relied on the advice of a tax professional.”
Yep, that is a defense, but you must use a tax
professional, provide all information – good or bad – to the professional and
actually rely on the professional.
Moreover, while he claimed to have brought all of his receipts to H&R Block along with his summaries, he later stated that his preparers didn’t want him to just walk in with his receipts and have them add it up ….”
Folks, accountants do not add up grocery bags of
receipts. Considering that the profession usually bills based on work time, I
doubt you want to pay someone for adding up your receipts.
The Court was direct:
We don’t need to address the …. because we don’t believe that Laudon provided ‘necessary and accurate information’ to his advisor.”
At this point, the Court did not believe anything Laudon
was saying.
Having blinded H&R Block to the details and peculiarities of his chiropractic enterprise, Laudon cannot now claim that he relied on H&R Block’s advice. We sustain the penalty.”
Our case this time was David William Laudon v
Commissioner. T.C. Summary Opinion 2015-54.
If you read only one, make it this one.
